Chemical

OPERATIONAL REVIEW
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A specialised polymer
manufacturing division

The division is the only producer of polyethylene terephthalate (‘PET’),
high-density polyethylene (‘HDPE’) and urea formaldehyde (UF) resins
and one of two producers of polypropylene (‘PP’) in South Africa. PET is
used primarily in the bottling industry for water, carbonated and other soft
drinks due to its high intrinsic viscosity and clarity, while HDPE and PP
are used in a broad range of applications, including piping, multipurpose
containers, fibres, films, non-woven fabrics and packaging. UF resins are
used primarily in the manufacture of timber board products.

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Business environment

The division produces HDPE and PP at state-of-the-art facilities in Sasolburg, with ethylene and propylene, its two primary raw materials, sourced directly from Sasol in South Africa at internationally indexed US dollar prices. As a result of the high-quality ethylene and propylene procured and the proximity of supply, the division is able to manufacture superior grade HDPE and PP, which allows it to compete actively in the global polymers market. PET is manufactured at the division’s operation in Durban from three primary raw materials, which are sourced from international suppliers. Selling prices of PET, HDPE and PP are strongly influenced by international supply and market demand forces and the resultant internationally indexed US dollar equivalent import parity prices. With both selling prices and raw material prices being US dollar-driven, this division provides the group with significant US dollar-linked margins without the complexity of doing business in foreign jurisdictions.

The division’s UF resin operation in Piet Retief manufactures formaldehyde, which is further processed into UF resin for use primarily in the timber panel industry. Specialist décor paper is imported and treated with urea and melamine resins through a paper impregnation line, making it ideal for use as decorative laminates, industrial laminates and laminates for melamine-faced board (‘MFB’).

Commentary

The Chemical division performed well for the year, showing revenue growth of 47% to R8 018 million from R5 467 million in the prior year, primarily as a result of the acquisition of Safripol midway through the prior year.

The division successfully concluded the integration of its PET operation in Durban and its HDPE and PP operations in Sasolburg into a single polymers business, which was recently launched under a reformatted Safripol brand. This will result in increased operational efficiencies and provide access to broader markets.

The PET product stream produced a disappointing result due to the delayed start-up of a major expansion project. The expansion project was, however, successfully completed, commissioned and tested to full capacity during the year. Domestic and international demand for PET remained strong, which resulted in US-dollar margins expanding by 11%. Both the HDPE and PP product streams performed ahead of expectation as a result of strong demand for the products. HDPE US-dollar margins expanded by 28% compared to the prior year, while PP US-dollar margins contracted by 1%.

The division’s UF resin operation also produced a pleasing result, with strong demand for the product and expanding margins.

Operating profit of the division grew by 38%.

Outlook

Global and domestic demand for the division’s products remains strong in spite of consumer sentiment surrounding the impact of single-use plastics on the environment. The division’s expanded PET operation in Durban is already operating close to nameplate capacity, in spite of a scheduled three-year ramp-up, as a result of strong demand for the product both locally and in certain international markets. Process yields are in line with industry best practice. Global polymer demand is expected to continue to grow as product conversion continues to take place in order to exploit the numerous benefits of polymers.

The group is actively involved in various initiatives to promote the reduction, reuse and recycling of plastics and to reduce the impact of discarded plastics on the environment.

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Safripol actively supports the principle of ‘reduction, reuse and recycling of plastics’ on a holistic basis in order to promote the sustainability of a vibrant polymers industry.

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