Sasol Faces Tough Challenges in Global Market

Sasol is a global chemicals and energy company that's facing some tough challenges in the market. Sasol's financial struggles are largely due to the decline in oil prices, which has made its business model less profitable.

The company's reliance on South African coal for its production also makes it vulnerable to changes in global energy policies. Sasol has a significant presence in South Africa, but this can also limit its ability to adapt to changing market conditions.

Sasol's operations are heavily dependent on its Secunda complex in South Africa, which produces a significant portion of its chemicals and fuels. The company's focus on cost-cutting measures has also led to job losses and reduced investment in research and development.

Sasol is facing a significant slump in profits, with a 63 percent drop in the six months through December. This is largely due to a sustained decline in oil and chemical prices.

The company's reliance on Brent crude, to which its revenue is linked, has made it vulnerable to price fluctuations. Brent crude dropped an average 47 percent from a year earlier.

Sasol's review of its $8.9 billion chemicals plant in the U.S. is a direct result of this slump. The operation of smaller derivative units at Lake Charles in Louisiana will start in 2019, instead of the initially planned 2018.

The company's cash savings from the price decline were partly offset by the weakening of the South African rand against the dollar. Sasol saved 10.8 billion rand ($703 million) in cash during the six months through December.

Sasol's exposure to carbon transition risk is significant, according to Moody's Ratings. The company has a "large exposure" to this risk, which requires significant investments.

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Sasol Ltd. has delayed its $8.9 billion chemicals plant in the US due to a sustained slump in oil and chemical prices.

The slump has resulted in a 63% drop in Sasol's profit, from 7 billion rand in the previous period to 2.6 billion rand in the current period.

Sasol saved 10.8 billion rand in cash in the six months through December as Brent crude prices dropped an average of 47% from a year earlier.

The company took a 7.4 billion-rand impairment charge on its interests in Canada's Montney shale-gas basin.

Sasol's liquid-fuels production rose 4% from a year earlier, while volumes of base chemicals declined.

The company expects Brent to stay in a range of $25 to $40 a barrel, which will put pressure on margins for base chemicals.

Sasol's attributable profit dropped to 7.3 billion rand in the six months through December, down from 19.5 billion rand a year earlier.

The company declared an interim dividend of 5.70 rand a share, down from 7 rand in 2015.

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Sasol Ltd. has boosted carbon credit purchases as it targets higher output using coal.

The company's business primarily relies on coal as a feedstock, making it susceptible to oil-price volatility.

Moody's Ratings said Sasol has a "large exposure to carbon transition risk", which requires significant investments.

Sasol's reliance on coal makes it vulnerable to the risks associated with carbon transition.

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Sasol's Secunda facility is an ageing plant that can't operate indefinitely, and when its equipment needs replacing, there's no commercial case to do so.

The facility will eventually close down, partly due to government regulation and partly because of how Sasol manages the transition.

Sasol has been in financial distress for several years, grappling with declining shareholder value, rising debt, and expensive projects that haven't delivered expected returns.

The company's Lake Charles Chemicals Project in the US went way over budget, making capital-intensive investments for decarbonisation even more daunting.

Ultimately, Sasol will have to find a way to navigate a host of difficulties until the Secunda facility is no longer operational.

Sasol's chemical exports to the U.S. could be impacted by higher tariffs, affecting $80 million in sales.

The company estimates it can mitigate at least $20 to $30 million of this impact.

Sasol operates a chemicals business in the U.S. and exports about 10% of its South African chemicals production to the world's biggest economy.

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Some customers are willing to allow Sasol to pass on the higher cost to them, while others may require the company to re-allocate some of the product to Asia.

Sasol's CEO Simon Baloyi believes the U.S. tariffs are not a major threat to the company, as it produces most of the chemicals it sells in the U.S. in the U.S. itself.

Here are the key points about Sasol's financial performance: