Polymers

Manufacture of polyethylene terephthalate ('PET'), high-density polyethylene ('HDPE') and polypropylene ('PP')

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As a specialised polymer manufacturer, the division is the only producer of PET, HDPE and one of two producers of 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.

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As a specialised polymer manufacturer, the division is the only producer of PET, HDPE and one of two producers of 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.

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212 318 tonnes
PET PRODUCED
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554
EMPLOYEES
162 445 tonnes
HDPE PRODUCED
117 230 tonnes
PP PRODUCED

“Our aim is to be the polymer business partner of choice in the industry, delivering premium products through leading technical expertise and world-class technology.”

– Nico van Niekerk

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Business environment

The division produces HDPE and PP in state-of-the-art facilities in Sasolburg, with ethylene and propylene – its two primary raw materials – sourced directly from Sasol (and SAPREF in the case of propylene) 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, allowing 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 at international US dollar prices. Selling prices of PET, HDPE and PP are strongly influenced by international supply and market demand forces, as well as the resultant international US dollar equivalent import parity prices. With both selling prices and raw material prices being US dollar-driven, this division provides the company with significant US dollar-linked margins without the complexity of doing business in foreign jurisdictions.

Commentary

Revenue increased by 22% to R8 690 million from R7 117 million as a result of a 13% growth in sales volumes. The strong operational performance by the division was overshadowed by significant margin volatility during the year. This margin volatility resulted from new global monomer and polymer production capacity being commissioned, primarily in the US. Nevertheless, the division produced a stable performance for the year. Operating profit declined by only
3% to R751 million.

The recently expanded PET operation in Durban ran at an average of 93% of rated capacity for the year, excluding a post-commissioning shutdown during July 2018, which affected 14 days’ production. The plant was successfully tested to 108% of nameplate capacity. Demand for the product was strong during the first half of the year; however, demand weakened during the second half of the year, a traditionally slower period, which necessitated increased exports at significantly lower margins.

Similar to the prior year, HDPE operations ran above normal capacity due to the availability of ethylene raw material. While global and South African demand for HDPE remained stable, volumes were impacted by an industry strike in the first half of the year. Margins were particularly volatile during the year as a result of the delayed commissioning of new ethylene capacity in the US, elevating margins during the first half but decreasing it again in the second half when the plants were commissioned. The HDPE raw material margin per tonne decreased by 32% between the first and second half of the year. Year-on-year margins experienced a net decrease of 6% for the full year.

The demand for PP remained buoyant and in excess of the division’s production capacity. Production was marginally below capacity because of two unscheduled shutdowns that affected five days’ production during the first half of the year. Margins weakened during the second half as a result of increased global polypropylene capacity and aggressive competitor activity.

Outlook

The division is expected to continue its strong operational performance in terms of production volumes and efficiency levels. The final debottlenecking project in the PET operations, which will cost R50 million, will improve the operational metrics of the plant and is scheduled to be completed in 2020. Margins are expected to remain volatile, with continuing weakness, as the global monomer and polymer production capacity expansion activities take time to be absorbed by markets. Global polymer demand is expected to continue to grow as product conversion continues to take place 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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