Crude oil prices to remain volatile – South Africa's Sasol

10 September 2012 13:06  [Source: ICIS news]

LONDON (ICIS) Crude oil prices are likely to remain volatile in the short-to-medium term as a result of slowing international growth rates, South Africa-based energy and petrochemical major Sasol said on Monday.

Commenting in the group's full-year earnings – which revealed a 25% year-on-year decline in its chemicals business operating profits - Sasol said that weakening demand for crude oil from eurozone economies and slowing growth in North America and emerging markets are likely to keep crude oil prices volatile “in the near term.”

“Product prices are expected to be equally volatile,” the company added.

Lower-than-expected North American natural gas prices impacted on the company’s bottom line in the second half of the year, with a rand (R)964m ($118m) impairment in its Canadian shale gas drilling operations contributing to a R4bn drop in overall operating profit for the second half of the year compared with the first half. Full-year operating profit for Sasol’s entire operations was up 23% to R36.8bn.

Sasol scaled back its number of active shale gas drill rigs in the region over the course of the year due to the depressed natural gas prices, but the company predicts that the medium-to-long term outlook for the sector is likely to be more robust.

Sasol CFO Christine Ramon said the company expects some potential for expansion in 2013, despite uncertainty in global markets.

“We are carefully monitoring and taking mitigating actions to counter the effects of the eurozone crisis. We continue to maintain a strong balance sheet, amidst a still volatile and uncertain global economic environment, which positions the company well to fund selected growth opportunities and provides a buffer against volatility,” Ramon said.

Operating profits were down across the three key lines of Sasol’s chemicals businesses – polymers, olefins and surfactants, and solvents. The sharpest drop was marked in the polymers sector, with slowing demand and increased feedstock prices leading to a 55% drop in operating profit compared with 2011.

A 23% drop in operating profit for olefins and surfactants was attributed more to significant one-off profits in 2011 than to reduced demand this year, as well as a R500m impairment at its Italian operations.

The company’s chemical operations are also under the scrutiny of The South African Competition Commission, with a tribunal hearing on the price of its polymer and polypropylene products scheduled to commence in May 2013. The Commission claims that Sasol Polymers sells the materials at an excessive price, an assertion the company disputes.

($1 = R8.18)

By: Tom Brown
+44 208 652 3214

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