Sasol SWOT & PESTLE Analysis
COMPANY PROFILE -Sasol
Business Sector :Energy and Chemicals
Operating Geography :South Africa, Africa, Global
About Sasol :
Sasol is an energy and chemical producer headquartered in Johannesburg, South Africa. It is South Africa’s largest liquid fuels producer as well as its largest manufacturer of chemical products. Founded in 1950, Sasol was set up using public funds from the South African Industrial Development Corporation. The firm initially operated factories built by the Germans in WWII to provide fuel for its military forces in Africa.In 1970, Sasol was partly privatized in order to raise capital for a third plant. In the early 2000s Sasol began international operations. It was listed on the New York Stock Exchange in 2003 which was followed by investments into facilities in Qatar and a joint venture in Malaysia. Sasol also began pursuing exploration in Canada and the United States. Sasol’s Lake Charles Chemical Plant (LCCP) based out of Louisiana is its largest foreign investment. The plant was supposed to be operational in the first quarter of 2019, however it is currently facing prolonged delays and cost overruns, driving up costs and pushing forward its initiation.
In 1996 South African operations accounted for about 77% of Sasol’s revenue which fell to 46% in 2014 with the advent of international operations. However, operations in South Africa still contribute the majority of the firm’s profits. Sasol has a very diverse product portfolio ranging from fuel for vehicles and aviation, energy for households and businesses, natural gas, high value chemicals and petrochemical by-products such as wax and surfactants. Its value chain is vertically integrated to a large extent as Sasol has captive coal and natural gas mines and oxygen production units supplying critical raw materials at low cost of procurement. The firm also purchases crude oil, paraffin, ethylene from the global market as feedstock for its production processes.
Sasol’s vision as per the company website is “To be a leading integrated global chemical and energy company, proudly rooted in our South African heritage, delivering superior value to our stakeholders”.
Sasol Revenue :
Rand 181.46 billion – FY ended 30th June 2018 (US $ 13.19 billion)
Rand 172.40 billion – FY ended 30th June 2017 (US $ 12.53 billion)
Competitive Analysis of Sasol
| 1. Global integrated chemicals and energy 2. Environmentally sustainable value creation 3. World’s largest oxygen production plant and in-house oxygen supply 4. Winning mining rights till 2050 5. Completely integrated value chain | 1. Steeply Rising Debts 2. Asset Impairment 3. Production interruptions impacting output 4. Low credit rating with negative outlook 5. Delays and cost overruns at LCCP |
| 1. Global Oil Price Increase 2. Upstream Exploration in Mozambique 3. Strong growth in world chemicals market | 1. Exchange rate volatility 2. Stiff competition in energy and chemical segments |
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Detailed SWOT Analysis of Sasol
Strength
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Weakness
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Opportunity
1. Global Oil Price Increase: As an energy and chemical company, Sasol’s earnings are greatly impacted by movements in the volatile oil global oil markets with rising oil prices increasing the firm’s fortunes. Since OPEC’s decision to cut oil production starting January 2017, oil prices have been continuously rising and through FY18 the Brent crude oil price saw an increase of 28% (+13.85/bbl.) to $64/bbl. Increasing tensions between US and Iran and fall in Venezuelan oil supply led to a market rally to $80/bbl. during May 2018. The prices are currently averaging at around $70/bbl. These price rises have positively impacted Sasol’s margins through higher USD chemical prices. The breakeven oil price at which Sasol can just meet its costs is at $35/bbl. The firm anticipates that this breakeven price will fall in the future through digital transformation and cost cutting initiatives. With oil prices at double the break-even price and a distinct upward price trend, Sasol will continue to reap windfall gains.
2. Upstream Exploration in Mozambique: Sasol is looking increase its upstream exploration and feedstock production through its strategic Production Sharing Agreement license (PSA) with Mozambique. The firm first commenced its drilling operation is Mozambique in May 2016. The PSA is an integrated project for LPG, gas & oil and is the nerve center of Sasol’s oil and gas strategy in Africa. Currently, Phase 1 and 2 of the PSA projects have been completed yielding 7 oil wells and 4 gas wells. The upstream project will help augment the owned hydrocarbon feedstock of Sasol and reduce its dependence on purchased feedstock in its Gas-To-Liquids (GTL) process. In addition, Sasol is evaluating options for upstream exploration and production in West Africa where it can benefit from lower costs of entry and balance sheet flexibility.
3. Strong growth rate expected in the world chemicals market: Sasol’s chemical business wing is by far its most profitable, making up over 60% of the company’s turnover. This makes Sasol particularly susceptible to trends in the global chemical market. The market outlook for specialty and base chemicals looks strong as Sasol expects the global revenue from “basic” chemicals to rise by 4.4% CAGR by 2021 (3.5% by 2030) while global revenues from “specialty chemicals” to grow by 5.6% CAGR by 2030. Basic chemicals constitute 18% of Sasol’s revenue with 3.1 million tons sold per annum worldwide. Polyethylene and polypropylene licensed technologies form the backbone of the basic chemicals business. Specialty (Performance) chemicals constitute 32% of Sasol’s revenue, with sales of over 3.5 million tons worldwide.
Threat
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Key Business Segments / Diversification :
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Sasol SWOT and PESTLE analysis has been conducted by Raj Vir Singh and reviewed by senior analysts from Barakaat Consulting.
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