Eskom, Transnet hamper Sasol profit

Sasol shares fell more than 6% after it said margins from a strong oil price — that boosts the value of its fuel and chemical products — were diluted by operational disruptions including power outages and rail logistics in South Africa.

The company has struggled with the quality of the coal it mines and uses as a feedstock, while international units have experienced volatility in pricing and demand that’s expected to continue for the rest of the year, it said in first-half results. Higher oil prices in the six months through December allowed Sasol to declare its first interim dividend since 2020.

“We remain focused on factors within our control, which include improving productivity and addressing coal quality at our mining operations, remaining agile and managing production rates to match market demand as well as maintaining our cost and capital discipline,” the company said.

Shares dropped as much as 6.4% before paring losses to trade 5.2% lower at 12:20 p.m. in Johannesburg. 

Electricity rationing by South Africa’s state-owned utility Eskom, as well as delays to service by rail operator Transnet, added to challenges during the period. Sasol said the ongoing uncertainties affected the accuracy of its forecasts. 

The company aims to reduce emissions by at least 30% by the end of this decade from 2017 levels. It is South Africa’s second-biggest producer of greenhouse gases, and coal and other fossil fuels still make up the major part of its operations.

Sasol faces a carbon tax in South Africa that it has warned could force the shutdown of some operations. While it is “fundamentally fully supportive” of implementing the tariff, clarity is sought around how allowances will work, CEO Hanre Rossouw said in an interview. “It’s got to be fair and just.”

Renewable Agreements

Agreements have been signed for 550 megawatts of renewable energy in an effort to decarbonize operations, nearly half of a target to procure 1,200 megawatts of green energy by 2030. Sasol and Air Liquide SA signed the latest long-term contracts for 260 megawatts of generation for the Secunda site. 

The company also established a 50 million-euro ($53 million) venture capital fund to invest in start-up firms developing technologies for sustainable chemicals and energy. That would “complement our internal research and technology capabilities to pursue compelling new options” toward a net zero goal, the company said. 

Programs to produce green hydrogen and sustainable aviation fuel were declared strategic integrated projects by the government in December, which allows a quicker turnaround time.

Sasol will gradually replace the use of coal with natural gas that’s already used in some operations. Supplies of the fuel transported from fields in Mozambique on the 537-mile Rompco pipeline should last until 2028 before more is needed. It could potentially utilize imports from the Matola terminal planned by TotalEnergies and Gigajoule Group in Mozambique.

The company planned to sign a term sheet for the supply last year, but favourable drilling results in Mozambique have made that less of a priority. Talks will continue with developers of the terminal, according to Rossouw. “There’s no urgency on our side.”