The persistent underperformance of key state-owned enterprises (SOEs) continues to trouble chemicals and energy giant Sasol, whose business is already navigating volatility in the macroeconomic environment, together with unstable product demand and pricing pressures.

On Thursday, the JSE-listed firm released its production and sales figures for the six months ending December 2023, which highlighted the country’s power crisis and logistics infrastructure breakdowns as concerning factors for its operations.

The local issues come in tandem with broader global challenges, such as weaker oil and petrochemical prices, inflationary pressures, unstable demand for products and a weaker global growth outlook.

As such, the group informed investors that pricing pressures continue to affect sales volumes, margins and ultimately, the firm’s profitability, a trend that may bleed into the rest of the financial year.

Read: Sasol: Value, or value trap?

“Pricing and demand volatility is expected to continue through H2 FY24. Global market sentiment and petrochemical markets remain uncertain with the persistent muted demand and margin outlook for Chemicals,” Sasol said.

“Our South African suppliers and customers continue to face business disruptions due to challenges at Eskom and Transnet,” it added, referencing its local headwinds.

To address its woes on the domestic front, Sasol noted that it is engaging the South African government to help both Eskom and Transnet find solutions to their respective problems.

Sasol’s share price traded 3.45% stronger by midday on Thursday following the data release at around R167.09 per share.

Production forecasts

Despite the challenges the firm faces on both the local and global front, Sasol told investors it expects production expectations to remain largely unchanged for the 2024 financial year.

“The previously communicated FY24 production and sales volume guidance remains intact for all segments, except ORYX GTL utilisation rate, which is forecasted to be 65-75% due to the challenges experienced in Q2 FY24.”

Mining productivity is expected to remain between 975 and 1 100t/cm. However, the firm cautioned that a tough second-quarter performance could keep the result on the lower end of the spectrum.

Mozambique’s gas production volumes are expected to stay between 113 and 119 bscf for FY24. This is after achieving 10% growth in production for H1 FY2024, thanks to the addition of three wells to the system, it said.

Read:
Logistics crisis: Neighbours eat SA’s lunch
SA’s failing ports and rail, a new growth risk – Sarb

The fuel business is expected to keep its production volumes for the full year at between 7.0 and 7.3 million tons after production volumes in the first half grew 8% stronger, coming off a lower base in the prior year.

The Chemicals Africa segment is expected to maintain sales volumes at 0-5% higher than FY2023. However, Sasol noted that growth in the segment will depend on better supply chain performance in the country, more so at Transnet.

Read all our coverage of Transnet’s woes here.

Similarly, the Chemicals America business’s sales volumes are expected to be 0-5% higher than FY2023 volumes. However, the performance it cautioned may be affected by “continued weaker global demand and movements in the US ethane/ethylene margin”.

Chemicals Eurasia’s sales volumes expectations remain at -5% to 5% on the previous year with Sasol only expecting a recovery in demand to commence in the second half of the 2024 calendar year.

 

source:Eskom, Transnet top Sasol’s list of worries – Moneyweb