Sasol declares force majeure post KZN floods

Maintains its risk mitigation strategy to protect against downside pricing risks.
Sasol says Q4 volumes could be impacted. Image: Waldo Swiegers/Bloomberg

JSE-listed global chemicals and energy company Sasol on Monday issued a force majeure declaration on the export of some chemical products, warning that expected final quarter volumes for its 2022 financial year (FY22) may be impacted. This comes after the recent floods in KwaZulu-Natal (KZN) caused major infrastructure damage in the province.

“Sasol is continuing to manage the consequences of the heavy rainfall and accompanying floods experienced in KwaZulu-Natal and assess the impact on the business,” Sasol says in a Sens statement.

“The situation has resulted in a force majeure declaration on the export of certain chemical products and our Q4 (fourth quarter) FY22 volume outlook could be impacted subject to the extent of infrastructure damage and the timing of the recovery and restoration of key infrastructure and utilities.”

Sasol’s force majeure declaration comes almost two weeks after Transnet Freight Rail division issued a precautionary force majeure – to its Coal Exporting Parties (CEP) – in relation to its coal rail service to the Richards Bay Coal Terminal.

Read: Transnet’s Freight Rail force majeure: Thungela sees no material impact

Business performance

In a production and sales update for the nine months ended March 31, Sasol says higher crude oil prices, a favourable macroeconomic environment, the revision of its margins as well as chemical prices in the face of heightened geopolitical tensions have supported the group’s performance during the period.

Despite seeing operational challenges in its mining division in December last year, the group says it remains on track to achieve its volume targets for the 2022 full year across most of its segment, thanks to an improvement in operations in the third quarter of the period.

According to the group, the energy business has since December 2021 registered a much stronger performance, characterised by a improved stability to operations and increased levels of productivity.

Sasol says its mining operations are well on the way to improvement and that its coal stockpile remains on track to reach 1.3 – 1.5 million tonnes by the end of June and achieve higher productivity in the third quarter.

“SO [Secunda Operations] has gradually lifted production rates as per plan due to improved coal availability, however we are continuing to monitor the quality of coal supplied. We maintain our mining productivity range of 950 – 1 040 t/cm/s for FY22 and SO production forecast of 6.7 – 6.8 million tons.”

The group also saw a 28% rise in sales revenue in its chemicals external operations on the previous comparable period, driven by higher average sales prices and offset by lower sales volumes.

However, chemicals Africa operations saw a 14% decline in sales compared with the prior year but an improvement in production at its Secunda operations supported a 7% increase in Q3 FY22 sales compared with the previous quarter.

Read: Sasol drops plans to invest in pipeline in favour of LNG imports

Keeps hedging programme

Despite having an improved balance sheet Sasol says more work still needs to be done after its leverage at the end of December 2021 remained above the desired levels.

This, along with ongoing volatility as well as an uncertain macroeconomic outlook supports the group’s decision to keep its hedging programme in place.

However, the group’s improved financial position has led it to revise down its oil hedge cover ratio for the 2023 FY to 40% from 69% in the 2022 FY.

The group says it expects to see this decrease even more in future as it continues to strengthen its balance sheet and is able to absorb more downside risk.

“On the back of the recent increase in oil prices as a result of the Russia/Ukraine conflict, Sasol has progressed the implementation of the financial year 2023 hedging strategy and has now executed 85% of the oil hedging mandate. This uses zero costs collars to provide downside protection below ~ US$63,03 per barrel together with a higher cap of ~ US$91,62 per barrel,” Sasol says.

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