JSE-listed petrochemicals giant Sasol says its financial performance for the nine months ended March 31 was underpinned by a favourable macroeconomic environment, with a higher crude oil price, refining margins and chemicals prices.

The higher prices were driven by prevailing geopolitical tension in Russia and Ukraine.

Further, Sasol continues to monitor the impact of heavy rainfall and flash flooding experienced in KwaZulu-Natal throughout April. The company has had to declare force majeure on the export of certain chemical products as a result of the flooding.

Sasol warns that its volume outlook for the last quarter of its 2022 financial year may be impacted, depending on the extent of infrastructure damage as a result of the floods and the timing of the recovery of key infrastructure and utilities in the province.

Meanwhile, during the quarter ended March 31, Sasol’s energy business performed stronger compared with December 2021, with more stable operations and higher levels of productivity.

After experiencing operational challenges in its mining and Secunda Operations (SO), Sasol says its coal stockpile is on track to achieve a volume guidance of between 1.3-million and 1.5-million tons by end-June.

The SO’s run rates are increasing, with better availability of feedstock and operational issues largely resolved, Sasol confirms, adding that liquid fuel sales volumes for the nine months under review were 5% higher year-on-year, owing to increased demand.

Chemicals external sales revenue was 28% higher year-on-year, driven by higher average sales prices and offset by lower sales volumes. The average basket price increased by 43% year-on-year in the period under review, owing to the higher Brent crude oil and feedstock prices, the conflict in Ukraine and reduced market supply from continued global supply chain challenges.

While the SO’s production rates outlook has been lifted owing to improved coal availability, Sasol continues to monitor the quality of coal supplied. Its production outlook forecast remains at between 6.7-million and 6.8-million tons.

Sasol says an evaluation of its SO volume baseline for the 2023 financial year is in progress.

Based on the current performance of SO and Natref, Sasol has revised its outlook for liquid fuel sales volumes for the full-year to between 52-million and 54-million barrels, higher than the prior guidance of between 51-million and 53-million barrels.

The ongoing conflict in Ukraine and resulting energy price volatility, together with rising inflation and Covid-19 lockdowns in China, pose a risk to sales volumes and margins during the last quarter of the 2022 financial year.

HEDGING

Sasol has made significant progress in deleveraging its balance sheet through a combination of asset divestments, operational actions and now more supportive pricing.

Despite this improvement, leverage remained above target levels as at December 31, 2021, along with ongoing volatility and unprecedented uncertainty about the macro outlook.

On this basis, the hedging programme has been kept in place to mitigate downside pricing risks and ensure Sasol can execute its strategy with confidence.

Given Sasol’s improved financial position, the oil hedge cover ratio for the 2023 financial year was reduced to about 40% compared with 69% in the 2022 financial year.

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 2023 financial year’s hedging strategy and has now executed 85% of the oil hedging mandate.

This uses zero costs collars to provide downside protection below $63.03/bl, together with a higher cap of $91.62/bl.

As the balance sheet continues to deleverage and is able to absorb more downside risk, the hedge cover ratios are expected to decrease further.