Chemicals top of the list for Sasol

Chemicals group Sasol has cut its guidance for fuel sales by double digits as SA’s 21-day lockdown hits demand.

Chemicals group Sasol, whose share price had its best day on record on Tuesday, has cut its guidance for fuel sales by double digits as SA’s 21-day lockdown hits demand.

The group now expects liquid fuel sales of 50-million to 51million barrels for its year to end-June, a decline of about 12% from previous guidance, with the group saying it is now prioritising chemical production.

“At this stage a similar reduction in Synfuels chemicals demand is not being experienced, and Sasol is prioritising supply of chemicals within SA as well as strong export demand,” the group said.

Daily production at the group’s Secunda synthetic fuel facility has been cut by a quarter and production could be reduced further, the group said.

A small number of its employees have tested positive for Covid-19 and are receiving support, Sasol said, though this has not affected operations.

Synfuels production volumes are expected to be between 7.3million and 7.4-million tonnes, a decrease of about 5% from previous guidance.

Sasol’s share price jumped 53.48% on Tuesday, its best day on record, though its share price remains under pressure from cost overruns at its Lake Charles project in the US, and a heavy debt burden.

The Louisiana project’s cost has ballooned 45% from initial estimates of $8.9bn (R161.4bn at the current rate of exchange) in 2014 to as much as $12.9bn.

Cost overruns at the megaproject prompted the firing of its co-CEOs in 2019 and prompted the group to twice delay its financial results. An explosion at the facility earlier in 2020 led it to revise its earnings forecasts for the facility downwards, while a recent oil-price spat between Russia and Saudi Arabia has put the fuel maker under additional pressure.

Sasol’s debt, a lot of which is denominated in dollars, has grown to about R130bn, while its market capitalisation comes to about R45bn.

To pay down the debt, the group is looking to generate cash of $6bn through costcutting measures, asset disposals and a possible rights issue.

Sasol’s share price has fallen about three-quarters so far in 2020, and markets are eyeing an Opec meeting on Thursday that could result in a new production agreement with Russia.