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Sasol’s shares fell more than 8% on Monday when the price of oil plunged amid rising stocks caused by falling demand due to the Covid-19 pandemic.
Shares of the local petrochemical giant hit a low of R52.01 on the JSE shortly after 14:00, after opening at R56.71, as the international price of crude fell to a 21-year low.
By Monday night, Bloomberg reported that the price of oil had dropped to less than $ 5 a barrel when the coronavirus reduced industrial and economic activity. The market is currently oversupplied amid a reduction of about a third in global demand.
Sasol has been one of the biggest causes of volatile market conditions, as a price war between Saudi Arabia and Russia also wreaked havoc on world markets.
Its stock price fell to R21.88 in March, from R470 less than a year ago, as a result of a price fight between the top two producers, and is now almost 90% lower than its 52-week high of R489.50.
The company previously announced that it covered approximately 80% of its synthetic fuel production in the fourth quarter at approximately $ 32 per barrel. Sasol has a debt load of more than R120 billion and his coverage program will continue for the next 12 months.
According to Meryl Pick, portfolio manager and analyst at Old Mutual Equities, the long-term implications for the company would be what “steps would be taken to resolve its balance sheet problems,” given the financial impact they have taken and the stabilization of debt. .
Pick added that the company’s hedging program would provide the company with some downside protection, even if the price falls below the current level. However, the company could forgo that advantage if the oil price recovered to $ 40- $ 45 a barrel.
In addition to being affected by oil price volatility, Sasol’s financial position has been further complicated by his controversial Lake Charles Chemicals Project, which has been affected by excessive costs. Its profits for the six months ending December 2019 plunged by 72%, largely due to the Lake Charles Project, which also led to the removal of its joint CEOs Bongani Nqwababa and Stephen Cornell, after a forensic investigation. found mismanagement in the project.
the However, the company has indicated that it can still search for a partner. for the Lake Charles Project. Sasol says he believes the project will start generating positive earnings before interest, taxes, depreciation and amortization in the second half of its 2020 financial year.
He also wants to sell assets worth $ 2 billion.
Earlier this month, Sasol announced that production would be suspended at its Natref fuel refinery due to an “unprecedented drop” in demand at the start of the shutdown.
