Sasol to consider rights issue, asset disposals as oil crash speeds investor flight

MOSCOW (MRC) -- South African petrochemicals group Sasol said it would consider raising funds by selling additional shares and disposing of more assets amid growing investor concerns about its debt levels after a crash in the price of oil, reported Reuters.

Around 76.5 billion Rand (USD4.6 billion) was wiped off the company's market value last week, with Sasol's shares hitting a 21-year low last Thursday, falling as much as 42% as oil prices plunged before recovering slightly to end the day down 29.36% at 37.24 rand.

Barring a significant recovery, this will be Sasol's worst week since listing in September 1989. The unexpected fall in oil prices has rattled investors who were already concerned about the company's high debt after it renegotiated some debt covenants last November. Reacting to the frantic selling, Sasol said it would consider a potential equity issue, reduce costs, reschedule some capital expenditure, expand asset disposals in excess of the current $2 billion target and engage lending groups. The company said cash and available facilities stood at around $2.5 billion rand with no significant debt maturities before May 2021. It has just completed a review of its assets in a bid to reduce debt. Seeking to assuage investors' fears the company could break its debt covenants, it said that at the current oil price of approximately R580/bbl, it would be within current covenant levels at 30 June 2020. Sasol's newly appointed chief executive officer Fleetwood Grobler said it was critical the company acted quickly and decisively. "We are therefore working towards a package of measures to ensure that the business is profitable even at low oil prices and that we continue to have a strong balance sheet to support it," said Grobler.

Monday's crude price crash further hobbled a company already battling to restore shareholder confidence after delays and cost over-runs at its Lake Charles Chemicals project (LCCP) in Louisiana forced its joint chief executives to resign late last year. "With the oil price collapsing, it's eroded the margin they were expecting on the project," said an investor who sold his Sasol shares on Monday. The destruction of value at one of South Africa's biggest companies adds to headaches for a government already grappling with a heavily-indebted state power company and airline. Although not a state-run company, Sasol's two top shareholders are state agencies - State asset manager the Public Investment Corporation has a 15.05% stake, while local development finance institution Industrial Development Corporation holds 8.53%, according to Refinitiv Eikon. Sasol said it would update the market in a conference call on Tuesday.

As MRC reported earlier, in mid December 2019, Sasol announced that the LCCP Ethane Cracker was increasing production rates following the successful replacement of the acetylene reactor catalyst. Sasol’s Ethane Cracker with a nameplate capacity of 1.54 million tons per year achieved beneficial operation in August 2019 but has run approximately 50-60% of nameplate capacity due to underperformance of the plant’s acetylene removal system. The company stated that the issue had been resolved then.

Ethylene and propylene are feedstocks for producing polyethylene (PE) and polypropylene (PP).

According to MRC's ScanPlast report, Russia's estimated PE consumption totalled 215,390 tonnes in the first month of 2020, up by 23% year on year. Shipments of all grades of high density polyethylene (HDPE) and linear low density polyethylene (LLDPE) increased due to higher capacity utilisation at ZapSibNeftekhim. At the same time, PP shipments to the Russian market were 127,240 tonnes in January 2020, up by 33% year on year. ZapSibNeftekhim's homopolymer PP accounted for the main increase in shipments.

Sasol is an international integrated chemicals and energy company that leverages technologies and the expertise of our 31 270 people working in 32 countries. The company develops and commercialises technologies, and builds and operates world-scale facilities to produce a range of high-value product stream, including liquid fuels, petrochemicals and low-carbon electricity.
MRC

U.S. gasoline refining profits slump to 2008 levels amid coronavirus fears

MOSCOW (MRC) -- U.S. gasoline refining margins fell a whopping 95% on Monday - even briefly turning negative - with the cost of gasoline plunging faster than crude oil in anticipation that the coronavirus will keep people off the road and in their homes, said Hydrocarbonprocessing.

The coronavirus pandemic has infected 180,000 people worldwide and caused over 7,000 deaths, prompting governments to order travel restrictions and business closures. U.S. gasoline demand is plunging as businesses shut and state and local governments advise people to stay home.

U.S. gasoline refining margins RBc1-CLc1 settled at 28 cents per barrel on Monday, their lowest since December 2008, another signal that economic activity appears to be contracting. “Oil prices have been dropping hard enough. For product prices to outpace them signals a huge shift in demand expectations,” said Matthew Smith, director of commodity research at ClipperData.

Refiners process crude oil into a number of products, chiefly motor gasoline, heating oil and diesel fuel. Normally, gasoline margins rise as driving season approaches, and distillate margins - for making heating oil and diesel - rise in the winter months.

The United States consumes about 9 million barrels per day of motor gasoline, but fuel demand is now expected to fall by roughly 2 million to 2.5 million bpd in the next three to four weeks, said Per Magnus Nysveen, senior partner at Oslo-based energy research firm Rystad Energy.

Congestion in major cities worldwide has been dropping sharply, according to TomTom, which makes navigation technology. Headed into the evening rush hour on Monday, congestion in New York City was down by 37% from last year’s average. In Chicago, it was down 24%.

Such declines have not yet shown up in U.S. official data. As of March 6, the four-week average for motor gasoline supplied by refiners - a proxy for demand - was up 1.7% from the year-ago period, according to U.S. Energy Department figures.

The margin to produce distillate products is at USD14.95 a gallon, a relatively healthy margin. Heavy-duty tractor-trailers use diesel, a sign that traders believe demand for shipped goods will be less affected as people take deliveries at their homes.

Oil prices have plunged both on the virus and the unexpected eruption of a price war between Saudi Arabia and Russia. U.S. crude futures have fallen more than 50% since the start of the year to USD28.70 a barrel. Gasoline futures have plummeted around 57% to nearly 69 cents a gallon. The steep drop in margins means that refiners may need to cut processing or temporarily shut to save money.

“This shows traders believe refiners could flood a shrinking market and sends them a strong signal to cut runs as soon as possible to prevent further losses,” said Sandy Fielden, director of oil and products research, at Morningstar in Austin, Texas.

Tracking the steep decline in U.S. margins, Northwestern European gasoline refining margins dropped to around -$6.6 a barrel on Monday, their lowest since January 2009.

As MRC informed earlier, oil rose more than USD1 as bargain hunters emerged after recent sharp falls due to the coronavirus pandemic and the price war between Saudi Arabia and Russia, but fears of a recession still dragged on the market. Brent crude was up by 3%, or 89 cents, to USD30.94 a barrel by 0746 GMT, after hitting a high of USD31.25. U.S. West Texas Intermediate (WTI) crude rose 4.7%, or USD1.36, to USD30.06, having come off a high of USD30.21.

As MRC informed earlier, Asian refiners may curtail jet fuel output by partially reducing processing as the fuel's value versus diesel plunged after the United States said it would ban European travellers to prevent the spread of the coronavirus. The regrade, which is the price difference between jet fuel and diesel with a sulphur content of 10 parts-per-million (ppm), fell to a discount of USD3.86 a barrel on Thursday, the lowest since Aug. 13, 2015, according to data from S&P Global.

Ethylene and propylene are feedstocks for producing polyethylene (PE) and polypropylene (PP).

According to MRC's ScanPlast report, Russia's estimated PE consumption totalled 215,390 tonnes in the first month of 2020, up by 23% year on year. Shipments of all grades of high density polyethylene (HDPE) and linear low density polyethylene (LLDPE) increased due to higher capacity utilisation at ZapSibNeftekhim. At the same time, PP shipments to the Russian market were 127,240 tonnes in January 2020, up by 33% year on year. ZapSibNeftekhim's homopolymer PP accounted for the main increase in shipments.
MRC

Ecopetrol cuts 2020 planned investment by USD1.2 B

MOSCOW (MRC) -- Colombia’s majority state-owned oil company Ecopetrol has cut its planned investment for 2020 by USD1.2 billion amid the outbreak of the novel coronavirus and an increase in global crude supply, the company said, as per Hydrocarbonprocessing.

The oil and gas company now sees its 2020 investment at between USD3.3 billion and USD4.3 billion.

Oil companies have been affected by a heavy drop in demand amid the coronavirus pandemic and a price war started by Saudi Arabia and Russia after they failed to agree to extend their pact to cut output to support the market.

Ecopetrol’s updated investment plan, where it will invest in early-stage opportunities, is aimed at preserving its production and cash flow, safeguarding its investments and committing to social investments, the company said.

Ecopetrol will also cut costs by 2 trillion pesos ($487.81 million) through austerity measures that prioritize its operating activities and will restrict travel, sponsorship, and participating in events among other things, it said.

With regards to dividends, the company plans to pay all of the dividends to minority shareholders on April 23 but will pay just 14% of dividends to the majority holder. It will pay the rest of the dividends to the majority holder in the second half of the year, it said.

Shares in Ecopetrol have fallen 47.9% so far in 2020 and closed on Monday at 1,725 pesos each on the Colombian stock exchange. Production for the year is still expected between 745,000 and 760,000 barrels of oil equivalent a day, the company said.

Ecopetrol on December 25 to resumed production of high-pressure polyethylene (LDPE) in the city of Barrancabermeja (Barrancabermeja, Colombia), previously closed due to a shortage of raw materials - ethylene. This roduction with a capacity of 23 thousand tons of LDPE per year was closed for repair on November 18.

It was previously reported that Ecopetrol intends to double sales by 2023. Ecopetrol sees opportunities to expand sales of aromatics, LDPE, solvents, base oils and asphalt in Colombia and other countries.

Ethylene and propylene are feedstocks for producing polyethylene (PE) and polyprolypele (PP).

According to MRC's ScanPlast report, Russia's estimated PE consumption totalled 1,904,410 tonnes in the first eleven months of 2019, up by 6% year on year. Shipments of all PE grades increased. PE shipments increased from both domestic producers and foreign suppliers. The PP consumption in the Russian market was 1,161,830 tonnes in January-November 2019, up by 7% year on year. Deliveries of all grades of propylene polymers increased, with the homopolymer PP segment accounting for the largest increase.
MRC

Oil prices jump over USD1 as sharp falls draw bargain buyers

MOSCOW (MRC) -- Oil rose more than USD1 as bargain hunters emerged after recent sharp falls due to the coronavirus pandemic and the price war between Saudi Arabia and Russia, but fears of a recession still dragged on the market, said Hydrocarbonprocessing.

Brent crude was up by 3%, or 89 cents, to USD30.94 a barrel by 0746 GMT, after hitting a high of USD31.25. U.S. West Texas Intermediate (WTI) crude rose 4.7%, or USD1.36, to USD30.06, having come off a high of USD30.21.

“Presumably, the market is getting supported by physical bargain hunters and short covering,” said Stephen Innes, chief markets strategist at AxiCorp.

The United States has said it will take advantage of low oil prices to fill its Strategic Petroleum Reserve (SPR), and other countries and companies are planning similar measures to fill storage tanks.

“But those storage facilities are rapidly filling. If storage does fill, quashing that demand, oil prices are sure to collapse further, and the global markets will then have to hope that the dispute between Saudi Arabia and Russia is resolved before we reach that point of no return,” Innes said.

Amid heavy demand loss from the global spread of the virus that causes COVID-19, Saudi Arabia and Russia started a price war after failing to agree to extend their pact to cut output to support the market.

Saudi Aramco has said it would likely carry over its planned higher oil output for April into May, and that it was “very comfortable” with an oil price of USD30 a barrel.

“Much focus is also falling on the Russians and Saudis, with no expectations for either side to blink unless oil collapses towards the USD15 region... If we see oil falls below the USD20 level, the Saudis may decide to come back to the negotiating table, however maybe just with OPEC and not the Russians,” said Edward Moya of Oanda.

Countries including the United States and Canada, and nations in Europe and Asia, in the meantime are taking unprecedented steps to contain the virus, severely crippling demand for crude and refined products including gasoline and jet fuel.

Gasoline refining margins in the United States, the world’s largest consumer of the motor fuel, plunged around 95% on Monday, briefly turning negative, as people stayed off the roads. U.S. President Donald Trump on Monday said economic disruptions from the spread of the coronavirus and measures taken against it could lead to a recession.

In Asia, margins for transportation fuels had also plunged after more countries imposed travel restrictions and curbed domestic movement as part of measures to slow the spread of the coronavirus.

As MRC informed earlier, Asian refiners may curtail jet fuel output by partially reducing processing as the fuel's value versus diesel plunged after the United States said it would ban European travellers to prevent the spread of the coronavirus. The regrade, which is the price difference between jet fuel and diesel with a sulphur content of 10 parts-per-million (ppm), fell to a discount of USD3.86 a barrel on Thursday, the lowest since Aug. 13, 2015, according to data from S&P Global.

Ethylene and propylene are feedstocks for producing polyethylene (PE) and polypropylene (PP).

According to MRC's ScanPlast report, Russia's estimated PE consumption totalled 215,390 tonnes in the first month of 2020, up by 23% year on year. Shipments of all grades of high density polyethylene (HDPE) and linear low density polyethylene (LLDPE) increased due to higher capacity utilisation at ZapSibNeftekhim. At the same time, PP shipments to the Russian market were 127,240 tonnes in January 2020, up by 33% year on year. ZapSibNeftekhim's homopolymer PP accounted for the main increase in shipments.
MRC

Asian refiner profits for transport fuels plunge on virus-fighting measures

MOSCOW (MRC) -- Oil refiners’ profits for transportation fuels fell further this week, with the margin for gasoline turning negative for the first time in more than a year, according to Refinitiv data, said Hydrocarbonprocessing.

The margins plunged to new multi-year or multi-month lows this week after more countries globally imposed further travel restrictions and curbed domestic movements as part of measures to slow down spread of the coronavirus.

Airlines and airports are facing a huge shock as they battle a cash crunch resulting from the coronavirus, while gasoline demand in the United States, the world’s largest oil consumer, is plunging as state and local governments advise people to stay home and businesses shut.

In Asia, refiners are now losing 78 cents on every barrel of gasoline they produce from Brent crude, their widest loss in 13 months. U.S. gasoline refining margins RBc1-CLc1 fell a whopping 95% on Monday - briefly turning negative - to settle at 28 cents per barrel, their lowest since December 2008.

Asian refining margins, or cracks, for jet fuel plunged to USD4.71 per barrel over Dubai crude, the lowest on record for Refinitiv data going back to March 2009. They were at USD7.70 on Friday.

“I don’t expect any recovery yet for jet fuel (margins), and I’m very much concerned (to know) if the current level is bottom yet ... But jet fuel will be the last to recover when the economy recovers,” a Singapore-based jet fuel trader said.

"The world has to wait for every country to go through this virus peak. Then demand will slowly come back, but my guess is probably not before late third quarter," she said.

Cracks for aviation fuel have shed nearly 70% since the beginning of this year as flight cancellations across regions led to unprecedented losses for airlines.

Asian refiners may have to curtail jet fuel output due to the weakening demand. Jet fuel cannot typically be stored for long periods as its quality would degrade, increasing the incentive for refiners to produce less of the fuel.

“When crude prices fell heavily early last week… it gave incentive to refineries to keep runs unchanged. Eventually, with virus-related situation developing, it’s now the second time for global refineries to think of run cuts again,” a Seoul-based middle distillates trader said.

As MRC wrote before, Saudi Aramco expects the coronavirus impact on oil demand to be short-lived and for consumption to rise in the second half of the year, Chief Executive Amin Nasser told Reuters in late February 2020.

Ethylene and propylene are feedstocks for producing polyethylene (PE) and polypropylene (PP).

According to MRC's ScanPlast report, Russia's estimated PE consumption totalled 215,390 tonnes in the first month of 2020, up by 23% year on year. Shipments of all grades of high density polyethylene (HDPE) and linear low density polyethylene (LLDPE) increased due to higher capacity utilisation at ZapSibNeftekhim. At the same time, PP shipments to the Russian market were 127,240 tonnes in January 2020, up by 33% year on year. ZapSibNeftekhim's homopolymer PP accounted for the main increase in shipments.

MRC