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FIFI PETERS: We’re coming to the end of our company results race right now, finishing off with Sasol which delivered a bittersweet earnings report [results for the six months to 31 December 2022] for its shareholders today. On the bright side, Sasol is still paying dividends as profits were boosted by a higher oil price this time around. On the dimmer side the company noted higher costs and lower volumes which brought down the ultimate bottom line. We’ve got CEO Fleetwood Grobler on the Market Update for more.
Fleetwood, thanks so much for your time. It is good to catch up with you, sir. Your stock was the second-biggest loser on the JSE today, suggesting that the market was expecting a little more from your performance. Looking at the period under review, how many of the tailwinds do you expect to spill over into the second half of the year, and how much of the stuff that held you back – the higher costs and the lower volumes – do you also see following you?
FLEETWOOD GROBLER: Thank you and good evening, Fifi. Yes, we tracked the market performance today and when we look at the share price performance vis-à-vis the [JSE] Top 40 we saw a general decline, but we declined more than the Top 40. So we are not happy about that performance and we know that we have to deal with a much better delivery for the next six months. When we look at the outlook for the next six months, Fifi, it is basically premised on [our seeing] a much better volume performance.
During the past six months we had a huge shutdown that occurs every four years, going forward every five years, in Secunda. That adds at least a 100 000 tons impact on what we would normally deliver through those six months. We won’t have such an event in the next period.
We also have availability of natural gas from our PPA [petroleum production agreement] production field in Mozambique, which we didn’t have in the previous six months. We have had a very successful infill-wells drilling campaign that makes available that additional gas that we can utilise in our operations in Secunda in the next six months. We also see the green shoots of our focus on the full potential per section per mine on our productivity improvement programme in our mining operations.
So, having regard for all of those factors we believe that the outlook and the delivery in the next six months from a volume perspective will be much better.
And hopefully we can also see a similar trend in our European and US businesses as market sentiment improves and we see that energy cost recede in Europe, and therefore that our customers start buying more with the confidence in mind that energy prices [will] start to moderate.
FIFI PETERS: I’m glad that you mentioned the US because we had an analyst, a market commentator on the show earlier, Simon Brown from Just One Lap, mention the US as being one of the areas where the market was expecting more from you. You’re saying that you’re hoping to do better in the period ahead, but what does that look like in terms of action? How can you perhaps guarantee a better performance this time around, especially given that, Fleetwood, we hear about the US economy and its vibrancy and the buoyancy, and that it’s a whole lot more resilient than people had expected. How much of that tailwind of the economy could possibly translate to your business there?
FLEETWOOD GROBLER: Yes, we’ve given the market guidance that we see a 5% to 10% improvement of our volume output from our US Chemicals America. And we premise that based on cracker rates improving. We had a very, very tough environment where ethane input costs were so high that there were even negative margins in some of the products.
So we saw the industry and many operators in the polyethylene industry cutting back operating rates, [so as] not to produce at negative margins. We were in that same boat. We’ve also cut back our production.
We have made decisions to rather idle plants than produce at that negative outflow, and we see that that has started to recover.
The polyethylene industry, the ethylene and ethane prices, have moderated. So it’s opening up a bit of margin. And we are now running flat out – our crackers and our joint-venture cracker that we’ve got in Lake Charles with LyondellBasell. We see, and they have also planned for, operating rates that are an improvement on the last six months.
As for our own specialty chemicals, we had that fire and some shutdowns planned in the US on our ethylene oxide as well as the Ziegler unit and have done those successfully. We had that incident that curtailed 50% of the output of our Ziegler [unit], which will be remedied by March this year.
So that means we would be producing at full tilt from the March onward period, which also supports this more bullish outlook in terms of volumes from the Americas at this point in time.
FIFI PETERS: The oil price? Consumers would like to know from you whether we can expect the kind of relief we have experienced at the pumps in recent whiles, particularly a stronger sense of relief from the period where the petrol price was sitting at record levels, and the Brent crude price was at levels that we hadn’t seen in in a very long time – north of $120 a barrel. What’s your visibility and your gauge on oil and where it’s headed in 2023?
FLEETWOOD GROBLER: There’s always a lot of commentary on where commodities are going, and where oil prices are heading. When we look at the fundamentals, it is all about supply and demand.
It is about how the uptick of the global economy would require more oil, more energy, for that demand equation.
And then, on the supply side, how the whole conflict situation is playing out in Europe and Ukraine. How is the demand normalising, based on the high energy cost that is being seen in those markets?
So I think our position is that we need to stay agile. We need to prepare for being resilient in a lower oil-price environment. So of course, when the oil price is in the eighties or nineties or hundreds, that is of course good for everyone in the energy industry, but for the consumer it’s putting pressure on the inflation environment, etc. The sad thing is we can’t control the oil price, and therefore we have to respond and be very resilient to whatever the oil price is, such that we can still deliver results that are attractive to our shareholders.
FIFI PETERS: All right. What about the gas price, and particularly locally the tiff around gas tariffs and what happens there? I may have missed developments on that front, but what can you tell us about the situation regarding gas tariffs?
FLEETWOOD GROBLER: What we have shared today with the market is that we are still waiting for [energy regulator] Nersa to make a determination on the gas price for our financial year 2023.
What I can say is that the gas prices are what they are. If we didn’t have the gas that we bring in from Mozambique our next best alternative was to bring in LNG [liquefied natural gas] and we all know that LNG is three, four, five times more costly than we can produce [it at] and supply currently into the market.
So I think we need to look at the long-term viability of gas in the country. We need to make sure that we can keep on exploring and make it viable for those investments that we do do in our upstream exploration activity to make it viable to continue to bring gas into South Africa because, if there’s no reward for that risk, then the next best alternative is that South Africa will bring LNG at a much higher price into the country.
FIFI PETERS: All right, so when are you expecting to get word from Nersa?
FLEETWOOD GROBLER: That is an ongoing process, and we expect that to be in the next month or two.
FIFI PETERS: Okay. Fleetwood, thanks so much for your time. Thanks for taking all the questions. Fleetwood Grobler is CEO at Sasol.
