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Shares of chemicals and energy group Sasol slumped almost 7% on Thursday, after it said it is still assessing the impact of the recent strike at Transnet, where unions recently reached a wage settlement, as well as counting the costs of a fire at the alcohol unit at its Lake Charles project in the US.

A wage dispute at Transnet had resulted in about a two-week strike which has cut into the export of commodities such as iron ore, chrome and coal, the latter representing a critical opportunity for Sasol, given prices of the fossil fuel have surged in the wake of Russia’s invasion of Ukraine. The firm has also declared force majeure, or legal protection for not meeting contractual obligations due to events outside of its control, for certain chemicals and its coal exports.

In afternoon trade on Thursday Sasol was down 6.61% to R294.17, although it is still up over 10% for the year to date, with the group receiving a boost from higher oil and chemical prices.

Click here for Sasol’s share price and more info.

Abdul Davids, head of research at Camissa Asset Management, said the operational update was a negative surprise for the market. Along with the Transnet force majeure impact being still unknown, the fire at Oryx in June and the impact on the first quarter’s production out of Qatar was also weighing on the share price, he said. Sasol has a joint venture with Qatar Petroleum, the Oryx gas-to-liquids (GTL) plant, and the firm reported on Thursday that a fire in June had affected operations there, with its utilization rate of nameplate capacity falling to 61% as result, from 101% in the prior comparative period.

In SA, meanwhile, the South African Transport and Allied Workers Union (Satawu) had appealed for its members to return to work on Thursday. Transnet’s majority union, the United National Transport Union, had agreed to a three-year wage agreement on Monday.

Sasol said on Thursday, as it released its production metrics for the three months to end September, it was maintaining its market guidance, but given the strike and significant global economic volatility, downside risks remain.

“We are assessing the impact of the disruptions to rail and port services across the value chain which will depend on the time required to restore key services after the wage settlements between Transnet and the majority trade union was reached recently,” Sasol said

In its mining business in its first quarter, export sales fell 29% to 500,000 tons, while saleable production fell 8% to 7.6 million tons, with Sasol also reporting operational challenges at two of its collieries as well as unplanned safety stoppages.

Liquid fuel sales fell 6% to about 12 million barrels, due to combined effect of an unplanned Natref shutdown in July, resulting from crude supply shortages, as well as a shutdown at its Secunda operations, which the firm said was completed successfully without any major safety incidents.

The sales volume outlook for the year remains in line with Sasol’s previous market guidance of between 53 million and 56 million barrels. The firm’s chemicals sales volumes were 9% lower year-on-year, largely due to lower production and continued supply chain challenges in Africa and lower demand in Eurasia, which was offset by higher sales volumes in America. Average prices, however, rose 12%, allowing for a 2% lift in external revenue in this business.

Sasol on Thursday also flagged a fire at its alcohol plant at the Lake Charles facility in the US on 15 October, saying there were no injuries and its safety teams had swiftly responded, but it is still determining the cause of the fire, as well as assessing repairs and start up timing.

Davids said on Thursday that while this was a major unit within Sasol’s performance chemicals business, there was too little detail to assess the impact.

“Our business performance was impacted by several challenges, including the ongoing conflict in Ukraine and weaker global economic prospects on the back of higher inflation and recessionary fears,” CEO Fleetwood Grobler said in the update.

“We broadly maintain our previous market guidance, but given the significant macro volatility, and more recently, the strike action by Transnet’s unions disrupting South African rail and port services, significant downside risk remains.” With Lisa Steyn

Correction: The blurb of an original version of this article had incorrectly stated Satawu was the majority union at Transnet.

SOURCE:

Sasol slumps as it counts the costs of Transnet strike, fire in the US | Fin24 (news24.com)