Over the past year, Sasol's share price has been on a troubling downward trajectory, reflecting a series of operational and financial hurdles that have beleaguered the integrated fuel-from-coal and chemicals giant.
On Tuesday, Sasol’s shares fell by 2.54%, to R59.45 in the afternoon, a stark contrast to the price of R170.96 just one year ago. This decline mirrors a more substantial drop over three years, from R367.72, effectively halving the share value.
Industry analysts attribute this distressing trend to a cocktail of operational challenges plaguing the company. Problems such as the extraction of low-quality coal from Sasol’s mines, diminished natural gas volumes transported from Mozambique, and inadequate feedstock supply have severely hampered production.
Rising unit costs at the Secunda facility have compounded these challenges, according to Robbie Proctor, an analyst at Anchor Capital.
A looming increase in carbon tax, driven by reductions in tax-free allowances, has further jeopardised Sasol's investment case.
A more pronounced issue is the sharp downturn in global chemicals pricing.
“Sasol's share price performance is directly tied to the trajectory of oil and chemicals prices. Should tariffs persist and global economies slide into recession, we foresee further downside risks. This situation is amplified by the company’s significant $4.3 billion net debt as of the end of 2024,” said Proctor.
The anticipated maintenance of high import tariffs to the US is likely to impact oil prices adversely, which, in turn, affects the pricing of ethylene and other commodity chemicals.
With the global chemicals market already oversaturated, closures of higher-cost production capacities are expected, particularly in Europe and Asia where the more expensive naphtha is prevalent. In contrast, US and Middle Eastern producers, benefitting from lower-cost feedstocks like ethane, will remain competitively positioned amid these shifts.
On the operational front, Sasol's natural gas reserves from its Pande Temane fields in Mozambique are dwindling, compelling them to extend the plateau to 2028. This will facilitate a gradual transition, allowing Sasol to utilise these reserves for its purposes rather than external sales to gas consumers in South Africa.
Geopolitical turmoil in the Middle East has maintained higher crude oil premiums; however, significant non-OPEC oil supply and subdued demand stemming from sluggish economic growth in major markets has weighed heavily on oil prices.
Furthermore, Sasol's chemical segment faces the cumulative impact of overcapacity in the global industry and declining global manufacturing linked to the Russia-Ukraine conflict, which has adversely disrupted supply chains and escalated energy costs in Europe.
The challenges faced by Sasol are magnified by its heavily leveraged balance sheet, with 94% of its total debt denominated in US dollars. The market's anxiety regarding Sasol's weakened cash-generation capabilities and its capacity to manage debt reduction effectively is palpable.
Despite these challenges, analysts observe glimmers of hope, as synfuels volumes are projected to improve through financial 2027, aided by the advancement of its coal de-stoning project. Proctor suggests that positive developments in tariffs or strategic production recoveries could herald a resurgence in Sasol's share price.
Malose Mamashela, a chemical and energy analyst at Mergence Investment Managers, said that Sasol's competitive advantage has wavered over recent years, especially as mining operations have shifted toward poorer quality coal and complex geological areas, necessitating increased external coal purchases.
However, the anticipated destoning facility was expected to bolster coal quality significantly by late 2027 or early 2028.
Sasol said in response to BR questions that its share price was influenced by various factors such the oil price, global geopolitical development and shifts in the regulatory environment.
"That said we are taking decisive steps to strengthen our business, We are drving improved efficiency and enhanced financial discipline to support long-term sustainability," Sasol said.
"Our priority in the near term is to strengthen our foundation business...we continue to address challenges to achieve operational stability."
The group said it would update the market at a Capital Markets Day in May.
The falling share price has mirrored the group's recent financial performance. For the six months to December 31, 2024, Sasol's headline earnings per share (HEPS) fell by 31% to R14.13, Its dividend payments have been suspended since 2020. For the year ended June 30, 2024, Sasol's HEPS were R18.19, a decrease of 66% compared to the previous year's R53.75.
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