• Petrochemical prices:  Petrochemical prices are usually published early on a Monday morning.  Petrochemical prices for last week were reported lower following the decline in the oil price of the previous week.  Asian ethylene prices declined by almost 6% to $635/t while propylene prices were slightly higher (+1%; $795/t).  In the USA, ethylene prices declined by 10.7% to $275/t.
  • Derivative prices lagging:  In Asia, polymer prices were flat with only LLDPE (-0.6%) and polypropylene prices (-0.5%) slightly lower.  US LLDPE and HDPE prices declined by 2.6% and 6.3%, however.  LDPE prices were flat.  In Asia benzene prices were 6.7% lower (PC feedstock) and MEG prices declined by 5.9%.
  • Price weakness to continue:  We expect petrochemical prices will continue to drift lower in coming weeks as cost curves have flattened following the oil price decline (link).
  • Sasol bond yields moving higher:  Yields on Sasol’s listed bonds continue to rise and the $1bn 10-year bond that reaches maturity in November 2022 traded at a 9.89% yield on Friday, compared to par of 4.5% (Figure 1).  The $1.5bn bond with maturity in March 2024 traded at 10.11% (par 5.875%) while a $750mn bond with maturity in September 2028 saw the yield increase to 8.66% (par 6.5%).
  • Credit default swaps also on the rise:  Sasol’s credit default swap (1 year) has increased to 502bp while the 5-year swap is at 580bp (Figure 2).
  • Waiting for Tuesday:  Sasol will communicate its action plan in response to the lower oil price and potential covenant breaches on Tuesday.  This could include expedited asset sales, restructuring, capital cost reductions, debt restructuring as well as a potential rights issue.  It is crucial that Sasol’s lenders support the plan and the company through the period.
  • Wait and see:  We will assess Sasol’s plan tomorrow in order to value the company and provide a rating on the stock.