Sasol Form 20-F for the year ended 30 June 2021 - Book - Page 16
We use derivative financial instruments from
time to time to partially protect us against day-to-day
and longer-term fluctuations in US dollar oil, export
coal and ethane prices. The oil price affects the
profitability of both our energy and chemical products.
See “Item 11—Quantitative and qualitative disclosures
about market risk”. While the use of these instruments
may provide some protection against fluctuations in
crude oil prices, it does not protect us against longerterm fluctuations in crude oil prices or differing trends
between crude oil and chemicals and petroleum product
prices.
weather-related damage and disruptions; competing
fuel prices and geopolitical risks, including warfare;
especially in the Middle East, North Africa and West
Africa.
During 2021, the dated Brent crude oil price
averaged US$54,20/bbl and fluctuated between a high
of US$73,04/bbl and a low of US$40,15/bbl. This
compares to an average dated Brent crude oil price of
US$51,22/bbl during 2020, when it fluctuated between
a high of US$69,96/bbl and a low of US$13,24/bbl.
A substantial proportion of our turnover is
derived from sales of petroleum, natural/piped gas and
petrochemical products, prices of which have fluctuated
significantly in recent years and are affected by crude
oil prices, changes in the demand for products, the price
and availability of substitute fuels, changes in product
inventory, product specifications, production capacity
and other factors.
It is inherently difficult to forecast fluctuations
in crude oil, ethane, natural/piped gas and chemicals
and petroleum products prices. This risk is exacerbated
by the COVID-19 pandemic and its impact on those
product markets. Fluctuations in any of these may have
a material adverse effect on our business, operating
results, cash flows and financial condition. Refer “Item
5A—Operating results” for the impact of the crude oil
prices on the results of our operations.
The South African government controls and/or
regulates certain fuel prices. The pump price of petrol is
regulated at an absolute level. Furthermore, maximum
price regulation applies to the refinery gate price of
liquefied petroleum gas (LPG) and the sale of unpacked
illuminating paraffin. South African liquid fuels are
valued using the “Basic Fuel Price” (BFP) mechanism.
BFP is a formula-driven price that considers, among
others, the international prices of refined products
(petrol, diesel, jet fuel, illuminating paraffin and LPG),
the rand/US dollar exchange rate and the logistical cost
of transporting liquid fuels to South Africa. The BFP is
then used as a component in the regulated prices that
are published by the government on a monthly basis.
Piped gas prices are regulated through the approval of
maximum piped gas prices by the National Energy
Regulator of South Africa (NERSA) from time to time.
Fluctuations in exchange rates may adversely affect
our business, operating results, cash flows and
financial condition
The rand is the principal functional currency
of our operations and we report our results in rand.
However, a significant portion of our turnover is
impacted by the US dollar and the pricing of most
petroleum and chemical products is based on global
commodity and benchmark prices which are quoted in
US dollars.
Further, as explained above, the components
of the BFP are US dollar-denominated and converted to
rand, which impacts the price at which we sell fuel in
South Africa.
Through our equity participation in the
National Petroleum Refiners of South Africa (Pty) Ltd
(Natref) crude oil refinery, we are exposed to
fluctuations in refinery margins resulting from
fluctuations in international crude oil and petroleum
product prices. We are also exposed to changes in
absolute levels of international petroleum product
prices through our synthetic fuel operations.
A significant part of our borrowings are US
dollar-denominated, as they relate to investments
outside South Africa or constitute materials,
engineering and construction costs imported into South
Africa. Fluctuations in the rand/US dollar exchange rate
impact our financial leverage and estimated capital
expenditure.
Prolonged periods of low crude oil, natural gas
and chemicals and petroleum prices could also result in
projects being delayed or cancelled, as well as the
impairment of certain assets.
We also generate turnover and incur operating
costs in euro and other currencies.
Fluctuations in the exchange rates of the rand
against the US dollar, euro and other currencies impact
the comparability of our financial statements between
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