The secret ingredient fuelling Sasol’s share price
· Citizen
Most investors will quickly correlate the strong recovery in Sasol’s share price – from less than R60 in April 2025 to current levels of around R300 – with the sharp increase in oil prices.
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It is correct that the oil price has had a big run since the US attacked Iran at the end of February, with Brent crude currently trading at $114 per barrel compared to below $60 at the start of 2025.
It is also correct that the longer oil prices stay high, the better Sasol will do.
Abdul Davids, head of SA research for Camissa Asset Management, says the oil price is a key driver of Sasol’s earnings and cash flow.
“The Brent oil price [recovered] from $70 in July 2025 to $114 currently, [and] Sasol’s share price has also risen – from around R150 in July to R285 on Friday.
“Clearly, further increases in oil prices as the Iran vs US and Israel war drags on will drive the share price higher. No one really knows where the share price will go,” he says.
The sharp increase in the share price has made Sasol the top performer on the JSE since the start of the year, with an increase of above 180%.
However, that the oil price improves Sasol’s profitability is only half the story.
The secret …
The secret ingredient? The humble lumps of coal that Sasol uses as feedstock to produce fuel – rather than expensive imported crude oil that serves as feedstock for traditional refineries.
Coal prices have increased by less than oil prices since the start of the war in the Middle East, by around 50% compared to 90% for oil.
It gets better in that Sasol owns its own coal mines. The true cost of a tonne of coal is the production cost rather than the market price of coal.
At the beginning of September, Sasol reported in its annual results for the year to end June 2026 that it had reduced its purchases of coal from other coal mines by 12%, supported by higher own production and the rerouting of volumes previously sold externally to its internal operations.
The completion and commissioning of a new facility to remove rocks from coal also contributed to the improvement.
“The de-stoning plant reached beneficial operation in December 2025, within schedule and cost guidance,” Sasol said at the time.
“Processing coal through the plant improved coal quality and contributed to lower external purchases.”
In its production update for the quarter to end September, the first three months of its new financial year, it noted that coal production improved further.
“Saleable production for quarter 1 of financial 2027 increased by 15% compared to the previous quarter and 18% compared to the first quarter of financial 2026, reflecting continued progress in improving own production,” according to the production update.
“This resulted in external coal purchases reducing by 33% compared to the previous quarter and 48% compared to the first quarter of the previous financial year.
“Mining delivered a strong performance in quarter 1, reaching its highest quarterly production in 6 years. Higher own coal production resulted in lower external coal purchases while sustained improvements in coal quality supported Secunda Operations.”
Synfuels
The importance to Sasol of synthetic fuel production using its fuel-from-coal technology, and by implication the importance of coal mines, is apparent from the financial statements.
In the 2026 financial year, most of Sasol’s fuel production came from its Secunda synfuels operations.
Fuel sales contributed nearly 94% to total revenue – R116.3 billion of the total of R124.2 billion.
Notes to the figures explain that synfuel is priced exactly the same way as oil-based fuel: “Liquid fuel prices are mainly driven by the Basic Fuel Price (BFP). Sales through wholesale is at BFP plus costs such as transportation and storage.”
Sasol also reported that liquid fuels sales volumes increased during the first quarter, mainly reflecting changes in customer buying behaviour and the planned drawdown of inventory built at the end of the previous financial year.
It also noted that refining margins and product differentials remained supportive for the fuels business during the quarter.
Another factor to take into consideration is that Sasol will benefit as long as the oil price stays high.
‘Perfect alignment’
Craig Pheiffer, chief investment strategist at Otto1890, also refers to the increase in the oil price as the main reason behind the increase in Sasol’s share price, but adds that there has been a “perfect alignment” of several factors.
“Higher margins in the fuels business, higher coal production, and higher gas and chemical prices all came together,” says Pheiffer.
The oil price has been above $100 per barrel for a while, and the longer it stays there the better.
“There is no catalyst for it to fall any time soon. Even if the situation in the Middle East improves, the oil price is likely to decrease slowly rather than suddenly.
“In the meantime, Sasol benefits from higher margins.
“Petrol is petrol and Sasol’s fuel sells at the same price as that refined from expensive oil.”
Risks
Pheiffer notes that there are risks to consider when getting too excited about the share price.
“Sasol is included in most portfolios and then there are a lot of speculators on top of that,” he says, alluding to the question of where new buyers will come from to push the price higher.
Shaun Murison, senior analyst at RandSwiss, also refers the benefit Sasol gets from producing fuel from coal and selling it at the same price as fuel made from (expensive) oil.
“Sasol’s recovery and aggressive move higher has been supported by higher oil and chemicals prices from the Middle East conflict.
“Sasol makes much of its fuel from coal and its revenue rises with oil – but its costs have been rising at a slower rate,” says Murison.
“The break-even cost in terms of the oil price sits at $49 a barrel as per the September quarterly update and current oil prices well above $110 improve margins considerably.
“For a sustained push past the R300 share price, I think markets would want to see the dividend reinstated as well. Sasol said it wants net debt below $3 billion – against the current $3.3 billion – before it does.
“Then Sasol is looking at distributing around 30% of free cash flow,” he says.
Murison says the main risk to the share price is a sharp fall in oil prices should the war in the Middle East wind down.
“The share price currently trades well above the consensus of estimates (polled by Refinitiv) and carries a hold rating on aggregate.
How the Sasol share prices compare to the target price estimates. Source: RandSwiss“I think for a rerating in these analysts’ targets, oil would need to remain elevated for a prolonged period,” says Murison.
“We know analysts can adjust their targets down when peace comes, as quickly as they adjusted it through the onset and continuance of the war.”
This article was republished from Moneyweb. Read the original here.