Sasol responds to Trump’s tariffs

Sasol is implementing various strategies, including a search for alternative markets to the United States, to mitigate against Trump’s tariffs that threaten around R1.4 billion in annual sales. 

The company, historically South Africa’s largest taxpayer, unveiled these strategies following the release of its annual results for the year ended June 30. 

Sasol swung back into a profit, basic earnings per share of R10.60 for the year ended June 30 compared to a R69.94 loss per share the previous year. 

This was largely due to higher chemicals prices, tighter cost controls and lower asset writedowns, with its turnover actually declining by 9% year-on-year. 

Apart from an intense focus on the company’s strategies to revive is local production and enhance efficiency, questions of how it would mitigate US tariffs surfaced. 

CFO Walt Bruns revealed that the company generates around $80 million (R1.4 billion) in revenue from sales to the United States. He believes the company can mitigate at least $20 million of that in the short term. 

CEO Simon Baloyi said the US tariffs are not a major threat to the company, with Sasol producing much of what it sells in the United States within the country. 

“We have an exposure of around $80 million to $90 million in terms of sales impacted by tariffs. We are working on plans to mitigate this,” Baloyi told Newzroom Afrika. 

“So far, we have managed to mitigate around $30 million worth of sales and continue with plans to mitigate the rest over time.” 

Some of this mitigation does include passing on costs to consumers in the United States, with it being the first port of call to maintain relationships and economic viability. 

“The first thing is to focus on price increases with customers. We are currently doing that in the United States,” Baloyi said. 

“The next thing is to analyse the tariffs and our own product set, to determine which are exempted from tariffs.” 

Baloyi also explained that Sasol is looking closely at potential duty clawbacks and reclaimables on exports to the United States to ensure its products remain competitive. 

Going to other markets

One of the few long-term solutions to the impact of the tariffs imposed by the United States is to find new markets for existing products or expand consumption from other customers. 

This is more difficult to do and will take years before an alternative to the US market can be found for many companies. 

The US, as the world’s largest economy with the richest consumers, is incredibly difficult to replace in terms of consumer demand and growth. 

Baloyi said that Sasol is looking at alternative markets to the United States for some of its product, but is likely to settle on growing sales in existin markets rather than enter new arenas. 

“If we can mitigate further by going to new markets, we will. But then, you have to look at the potential costs of doing that and whether we will be able to realise the same prices for our products elsewhere,” he said. 

The impact of tariffs on South Africa’s economy has not been as severe as anticipated, largely because of the presence of alternative markets. 

America only consumes around 8% of total exports from South Africa, with the European Union and China each consuming 20%, respectively. 

The main impact of tariffs will be the indirect effects from the potential slowdown in these economies due to increased US duties on their exports. 

One of the tariffs’ most notable impacts so far is the sharp decline in US imports from China, which fell to levels last seen during the pandemic. 

China’s exports were 7% higher than a year ago in July, which shows that it is increasingly resilient in the face of aggressive US trade policies. 

Before Trump’s first term, almost 20% of China’s exports went to the US. That number has halved, but Odendaal said China’s export machine remains in good health. 

Some of these point to a rerouting, or transhipment, of Chinese goods through other countries to the US, a practice the Trump administration is clamping down on. 

However, it also suggests that China has managed to diversify its export base, making it less dependent on a single market.

Companies have also implemented stopgap measures, such as stockpiling products ahead of the imposition of tariffs to ensure business runs as usual for as long as possible. 

This offers only a temporary reprieve, however, as companies are expected to run out of these stockpiles before the end of the year. Only then will the true impact of tariffs be clear.