Sasol Integrated Report 2023 - Book - Page 15
INTRODUCTION
ABOUT SASOL
STRATEGIC OVERVIEW
CREATING VALUE
PERFORMANCE
GOVERNANCE AND REWARDS
ADMINISTRATION
OUR OPERATING REALITY CONTINUED
PROFIT
Externally, geopolitical conflict resulted in higher-than-expected commodity energy prices, while chemical prices experienced a decline.
DRIVER: Exchange rates
DRIVER: Inflation
DRIVER: Chemicals price
In 2023, the rand depreciated by approximately 17%
on average against the stronger US dollar.
Domestic factors such as electricity curtailments
caused by loadshedding, and fears that South Africa
could lose access to the US African Growth and
Opportunities Act also weighed on the currency.
Following very high levels of inflation in the
first half of the 2023, inflation in most countries
is easing.
Weak demand, inflationary pressures and high
energy costs in an over-supplied polyolefins
market resulted in lower margins during 2023.
We expect inflation to ease modestly,
but it may take time before it falls
within central bank targets.
We expect commodity chemical margins
to remain under pressure during 2024,
with available supply likely to outpace
demand growth.
Considering domestic and international risks,
the currency is expected to remain volatile.
DRIVER: Economic growth
South Africa9s economic performance remains
disappointing, largely due to unreliable
electricity supply, deteriorating logistical
infrastructure and socio-economic challenges.
These constraints are unlikely to
be resolved in the short term, with
a volatile and demanding trading
environment likely to persist.
World and South African GDP growth (%)
18
World
19
20
Year
21
17,8
15,4
14,2
15,2
15,7
13,6
R/US$
17
18
19
20
Year
21
22
23
Source: Reuters
Most of our turnover is denominated in US dollars
or significantly influenced by the rand/US dollar
exchange rate. This turnover is derived from exports
from South Africa, businesses outside of South
Africa or sales in South Africa, which comprise
mainly petroleum and chemical products based on
global commodity and benchmark prices quoted in
US dollars. Therefore, the average exchange rate
significantly impacts our turnover and earnings
before interest and tax (EBIT).
Continued OPEC supply management
amid a sluggish world economy, increased
non-OPEC supply and disruptive geopolitical
events, could lead to large swings in the
oil price.
Average Brent crude oil price (US$/bbl)
22
23*
40
20
Year
21
87,3
20
0
17
18
South Africa
Source: IMF, StatsSA, SARB, *Sasol forecast
92,1
68,6
60
63,6
80
49,8
For forecasting purposes, we estimate that a 10c
change in the annual average rand/US dollar
exchange rate will impact EBIT by approximately
R630 million (US$35 million) in 2024. This excludes
the effect of our hedging programme and is based
on an average Brent crude oil price assumption of
US$79/barrel.
54,2
17
10
The Brent crude oil price declined from an average
of US$92/bbl in 2022 to $87/bbl in 2023 as muted
economic conditions limited demand growth,
while Russian oil exports remained resilient
despite Western sanctions. Organisation of the
Petroleum Exporting Countries (OPEC) production
cuts provided some price support. Disruptions to
established product trade flows supported
refining margins during 2023.
51,2
6,0
-10
15
US$
2,9
0,1
2,8
0
-5
20
For forecasting purposes, a US$1/barrel change in
the average annual crude oil price will impact EBIT
by approximately R840 million (US$46 million) in
2024. This is based on an average rand/US dollar
exchange rate assumption of R18,17.
100
3,4
1,9
6,3
2,8
0,3
1,6
3,6
3,8
1,2
5
4,7
10
DRIVER: Gas price
Average exchange rate (R/US$)
12,9
With several of these factors still weighing
on the global outlook, we expect another
year of challenging business conditions.
% year-over-year
(MM)
Global economic growth has been subdued,
with the Russia/Ukraine war, geopolitical
tensions, stubborn inflation, rising interest
rates and global banking sector problems all
making for a challenging operating
environment.
DRIVER: Crude oil price
Source: S&P Global
SASOL INTEGRATED REPORT 2023
14
19
22
23
After a spike in European gas prices due to
the Russia/Ukraine war, prices eased on
a milder-than-expected winter and sufficient
inventories. The US gas market was well
supplied on robust production, favourable
weather and pipeline debottlenecking.
The lower Henry Hub gas prices contributed
to lower ethane prices.
Healthy storage levels are expected
to keep prices low during the weak
demand season. However, prices are
expected to rise after that to ensure
sufficient stock building for the northern
hemisphere winter.
DRIVER: Coal price
Following the 2022 price spike in the wake
of the collapse of coal exports from Russia
to Europe due to sanctions, global coal prices
followed natural gas prices to below the level
they were before the Russia/Ukraine war.
Coal prices will likely be supported in
the first half of 2024 owing to demand
strength, but increased supply could
eventually lead to lower prices.
