MOSCOW (MRC) -- Sasol reports a net loss for the full financial year ended 30 June of 91.3 billion South African rand (USD5.3 billion), compared with earnings of R6.1 billion in the prior year, saying the loss is due largely to an impairment of R111.6 billion and the plunge in oil and chemical prices in the last two financial quarters due to COVID-19. Base chemicals, primarily in the US, account for R72.6 billion of the R111.6-billion rand impairment, according to Chemweek.
The last of the seven units at the company’s troubled Lake Charles Chemicals Project (LCCP) has also suffered a further start-up delay, but Sasol says the negotiations process with potential partners for its base chemicals assets in the US, including LCCP, “has seen strong global interest and is now at an advanced stage” with a closing of the transaction “probable” by December. The company warned of the expected full-year financial loss in a trading statement earlier this month.
Full-year sales were down 6.5% year on year (YOY) to R190.4 billion, despite the company’s base chemicals and performance chemicals sales volumes rising 19% and 8% YOY, respectively, it says. There were “softer commodity chemical prices across most of our sales regions due to weaker global demand and increased global capacity,” it says. An 18% decrease in the rand per barrel price of Brent crude oil, coupled with softer global chemical and refining margins, negatively impacted Sasol’s realized gross margins, particularly during the second half of the year, it says.
The LCCP delivered improved EBITDA earnings in the second half of the financial year of approximately R100 million, compared with an EBITDA loss of R1.1 billion in the first six months of the year. After the LCCP’s ethoxylates (ETO) expansion achieved beneficial operation in January this year, the alcohol expansion and the alumina expansion, as well as the new Guerbet unit, achieved beneficial operation in June, Sasol says. All of the LCCP's specialty chemicals units are now online, with 86% of the complex’s total nameplate capacity operational, it says.
The last remaining unit to come online is the low-density polyethylene (LDPE) unit, damaged during a fire in January. The unit is now expected to achieve beneficial operation before the end of October. “Some challenges in restoring the unit” resulted in the date sliding back from its previous market guidance for a start-up at the end of September. Ethylene produced by the LCCP’s steam cracker during this period of delay that was destined for the LDPE unit is being sold to third parties, Sasol says. The ethane-fed cracker produced at an average rate of above 80% of nameplate capacity during the fourth quarter of the fiscal year, it says. “Projected earnings for the LCCP complex in this financial year will be impacted only by the loss in the margin of ethylene to LDPE,” it says. The LCCP’s current forecast cost estimate of USD12.8 billion is still on track, it adds.
The demobilization of the LCCP project is progressing according to plan, with the remainder of the work limited to the removal of scaffolding, according to Sasol. Site demobilization of construction equipment, infrastructure, and services will be completed after the last unit achieves beneficial operation, with the number of people on site now less than 400, it says.
As part of the potential partnering process for its US base chemicals assets, Sasol says the assets and liabilities relating to its US base chemicals portfolio have been classified as disposal groups held for sale, leading to the R72.6-billion impairment and “reducing the carrying value of the disposable asset down to its fair value less cost to sell.” Proceeds from the planned disposal, combined with self-help measures, “should make a meaningful and positive impact on Sasol’s financial prospects, principally as a result of the intended use of disposal proceeds to settle debt with payment obligations within the next 12–24 months,” it states. In its guidance it adds that it has applied a 50% partnering for its base chemicals portfolio adjustment within its US business in 2021. CPChem, ExxonMobil, Hanwha Solutions, Ineos, and LyondellBasell are all reported to have expressed interest in buying a stake in Sasol’s assets, according to previous reports.
It also confirms its recent entry into exclusive discussions with Air Liquide for the sale of 16 air separation units at Secunda is for a total transaction price of R8.5 billion. “A further announcement will be made when terms have been finalized with any transaction expected to be subject to customary conditions precedent,” it says.
Capital expenditure (capex) was reduced by approximately R6.0 billion for the year by deferring certain expenditures, with capex totaling R35 billion. This included R14 billion related to the LCCP project and was in line with Sasol’s internal targets, it says. The company says it exceeded its cash conservation target of USD1 billion for 2020, largely through cash fixed cost reductions, as well as capex and working capital optimization, and adds that it has “committed plans in place to deliver against our USD1 billion target for 2021.”
Sasol’s “liquidity headroom” was over USD2.5 billion, which it says is “well above our outlook to maintain liquidity in excess of USD1 billion." The company has also reiterated its plan to pursue a USD2-billion rights issue, saying it would take place in the second half of the 2021 financial year.
In its guidance for its full financial year 2021, Sasol says it expects an “overall solid operational performance,” with base chemicals overall sales volumes to be 3–5% higher than 2020. Excluding US polymers products, sales volumes are put at 1–2% higher than 2020. Performance chemicals overall sales volumes are forecast at 3–5% higher than in 2020. Excluding LCCP-produced products, sales volumes will be “flat or slightly below the prior year,” it says. Capex for 2021 is put at R21 billion.
As MRC reported earlier, Hanwha Group has lost to US-based chemical company Chevron Phillips in a bid to acquire a 50% stake in global chemical company Sasol’s ethane cracking center (ECC) located in Louisiana, for which the South Korean conglomerate offered more than USD3 billion.
We remind that Sasol's world-scale US ethane cracker with the capacity of 1.5 mln tonnes per year reached beneficial operation on 27 August 2019. SasolпїЅs new cracker, the heart of LCCP, is the third and most significant of the seven LCCP facilities to come online and will provide feedstock to our six new derivative units at the company"s Lake Charles multi-asset site.
Ethylene and propylene are feedstocks for producing polyethylene (PE) and polypropylene (PP).
According to MRC's DataScope report, PE imports to Russia dropped in January-June 2020 by 7% year on year to 328,000 tonnes. High density polyethylene (HDPE) accounted for the main decrease in imports. At the same time, PP imports into Russia rose in the first six months of 2020 by 21% year on year to 105,300 tonnes. Propylene homopolymer (homopolymer PP) accounted for the main increase in imports.
Sasol is an international integrated chemicals and energy company that leverages technologies and the expertise of our 31 270 people working in 32 countries. The company develops and commercialises technologies, and builds and operates world-scale facilities to produce a range of high-value product stream, including liquid fuels, petrochemicals and low-carbon electricity.