Sasol Company Market Analysis - Term Paper Example

Market Analysis Sasol is a multinational energy and chemical company producing a wide range of products for its consumers. The company has its base in South Africa and has expanded to other parts of the world as well. The market analysis report of Sasol focuses on increasing the energy efficiency, brand development and consumer segmentation. It gives a clear view about the external and internal marketing environment’s impact on the company. It determines how the global market influences the performance as well as the marketing strategies of the company. External Marketing Environment Analysis: The Oil and gas industry probably faces maximum impacts from the external environment, and Sasol is no exception to it. It has to handle a few vital external factors that influence its products market. The significant matter of concern for this industry is the constantly fluctuating oil prices and the environment issues. The frequent changes in the price of coal and oil in the global market greatly affects the company’s marketing process. Sasol’s Gas-To-Oil proposal (GTL) faces subsequent hurdles with the price differences observed both on the price of oil and gas. It is to be noted that the changes in oil and gas prices do not impact on the company’s GTL project favorably, all the time. “For GTL to make sense, it’s all about the differential between the price of gas and the price of oil. If gas goes to $10 and oil stays the same as it is now, GTL doesn’t make sense, But, if gas is $10 and oil goes to $200, then the difference makes GTL quite compelling.” (Volman). And thus, the company has to take appropriate initiatives to counter these fluctuating costs, in order to garner benefits in the long-run. The strong South African economy provides growing, profitable home market for Sasol. In the stock market, Sasol offers a solid dividend and the stock currently yields a hefty 4.59%. Though recent markets are not satisfying the investors, Sasol is relatively volatile with a beta of 1.40. (Yates). Though there is fall of oil prices, Sasol probably offers much to its investors. Government regulations and policies also affect Sasol’s marketing. The currency devaluation of Rand has a strong impact on the strategies of Sasol. “Customers receive a further R1.25 preferential procurement recognition for each R1 they spend with the Sasol Group of Companies.” (“BEE certificate”). In addition, the political interruptions in pricing decisions, due to the elections, drive the market of oil industry. The increase of taxes and lowering of synfuel subsidies by the government probably affect the product marketing which in turn affects the revenue of the company. Thus, Sasol has to take necessary measures to sustain among these regulations of the government policies. Black empowerment companies enjoy better benefits as the government insists on 25% indigenous participation to its value chain. (“BEE certificate”). Sasol, being a BEE verified enterprise, commits to promote and enhance African empowerment. The environmental issues are yet another phenomenon that affects the company’s marketing, particularly from the perspective of social responsibility. Some of the major environmental issues that affect Sasol are pollution created by refineries, introduction of eco-friendly fuels, oil spills, GHG emissions and more. Though Sasol has taken alternative measures for producing fuels, these methods also tend to emit a considerable amount of GHG and lead to pollution of the environment. PEST Analysis: Political: Regulations from the government regarding taxes Political instability Lowering synfuel subsidies Economic: Currency volatility in South Africa Persistent inflation in input cost Price fluctuations of the global market Strong African economy Social: Strikes in African mines Limited access of labor in the local environment Providing employment opportunities on racial lines Technical: Expanding its Gas-To-Liquid (GTL) and Coal-To-Liquid (CTL) technologies for producing fuel Growing chemical portfolio and leveraging technical advantages Expensive fuel production facilities Internal Marketing Environment Analysis: Sasol deals with a wide range of products and should focus on the market trends with much awareness in its immediate environment. Sasol produces a diversity of products such as synfuels, chemicals, oil and gas, mining, etc. With a wide array of products manufactured in South Africa and other parts of the world, the company has enormous end consumers who benefit from their products. Sasol markets its products directly to the consumers as well as the commercial and industrial customers. This indeed integrates the company’s upstream and downstream activities. The main issue Sasol currently faces in its internal environment is the labor problems in its mining sector. The frequent strikes by the miners in South Africa are causing challenges for the mining companies, including Sasol. Yet Sasol has been strong enough to survive in spite of the strikes and showed a reasonable performance in the current year. Sasol’s new innovative technologies in its production units augur well for the company’s growth and marketing. The CTL and GTL technologies introduced recently provide an alternative to the traditional oil extraction. It gives an opportunity to generate fuel even for the countries with little petroleum resources. In addition, as part of changes in its internal environment, Sasol is also considering cleaner renewable energy options. “Sasol is also exploring renewable and lower-carbon energy options such as solar and wind power, as well as hydroelectric, clean coal and natural gas-based power opportunities.” (“Sasol Facts 2011”). Sasol has a good operating performance in terms of its cash flow and material investments. “If Sasol continues to increase both investment and dividends ahead of growth in operating cash flow, it is likely to have to raise additional debt.” (“S&P cuts Sasol ratings.”). The company has developed a considerable expansion of its products and services, both in South Africa and worldwide. Though the economy was facing a decline, the company’s expansion strategy worked well for it in its marketing and development approach. In July 2009, Sasol started a joint venture with Uzbekneftegaz in Uzbekistan and PETRONAS from Malaysia for its GTL project. (“Sasol Facts 2011”). For the research and development, in June 2009, Sasol established a high-quality fuel testing facility within South Africa for 70 million rand. (“Sasol Facts 2011”). This facility is the company's biggest infrastructure option for testing the synthetic as well as crude oil derived fuels’ impact on vehicle emission and performance. The increasing competition in the South African as well as worldwide oil industry contributes much to Sasol’s marketing strategies as it has to compete with the emerging companies. South Africa’s need for additional refinery capacities and the need for additional investments provided the entry for the potential oil companies such as Mobil, Elf and Agip into the South African Market. These companies pose a significant threat to Sasol. However, Sasol “can claim to save considerable foreign exchange through utilization of local raw materials and probably have lower unit production costs, excluding depreciation and interest, than conventional refineries.” (“Oil and Gas in South Africa”). Also, Sasol is following the strategy of allowing product imports to compete with the refined product and synfuels, so that the prices can be kept at competitive range, thereby countering competition. SWOT Analysis: Strengths: Efficient technologies like GTL and CTL. Strong research and development (R&D) department. Diversity of products and services. Worldwide expansion of projects. Weaknesses: Economy of the country and political interruptions. Labor problems in the country. Fluctuations in oil and gas prices Currency devaluation Opportunities: Demand for products in developing countries Opportunities to expand into other related product range. Profitable investments on many viable projects. Threats: Government regulations and taxes. Competitive business firms. Global Environmental issues Impact on the Marketing Mix: With these prevailing marketing changes, both external and internal, let’s take into account the impact of the marketing mix, prices, products, and process on Sasol. The prices of the products are mostly influenced by the government policies and the global demand and supply. And so Sasol’s marketing revenue is highly marked with the fluctuations of the prices. Sasol’s synfuel production depends on the GTL and CTL technology which is comparatively higher in cost than the traditional methods of fuel production. So, it has to be susceptible to the change in the price structure of the products as its profit directly depends on the price of oil. This technology also has a negative impact on the environment issues as it is prone to pollution and emits GHGs. Still, there is a great demand in the global market for this new trend and Sasol continues to act as a leader in the global energy market. This influences the company’s marketing strategies of expanding its operations to other parts of the world. The company’s production capacity was enhanced by the introduction of the innovative technologies such as GTL, CTL in oil, Fischer-Tropsch (FT) technology in coal. With these advanced technologies, Sasol’s production exhibited a positive trend in the current year. There was a significant increase in overall production and marketing of the products, marking Sasol’s performance last year as its best performance in the past five years. “Sasol Synfuels, delivered production for the year of 7,2 million tons (mt), despite the negative effect of industrial action and plant instabilities in the first half of the year.” (“Sasol Facts 2011”). Thus, the innovative approach in production has ensured a favorable outcome in the global market for the company’s products. With the increase in the oil prices and improvement of the company’s production volumes, Sasol’s operating profit showed a considerable shot up. In the fiscal year 2012, “Sasol Oil reported an operating profit of R1.6 billion as against R1.2 billion in the prior-year period.” (“Sasol Misses, Reports Profit Jump.”). Yet another reason for this operating profit shoot up was the higher production from the GTL plants in Qatar. This improvement was a result of the better marketing profitability and higher product prices. In contrast, there was also a decrease in sales volumes due to these effects. The company’s market expansion strategy shows a favorable outcome for its product distribution. Sasol Middle East (SME) is the entity that markets and distributes the products to South Africa and various parts of the world. Sasol sells and distributes its products to the end users through distributors and agents. The company efficiently uses its consumer relations methodology in marketing its products. Conclusion: With the economic conditions still a challenge, the company management has to be cautious in their approach to marketing. Being a major petrochemical firm in South Africa, it has conquered the local market and is still sustaining its growth with the diversity of products in the global market. The worldwide market expansion of Sasol ensures a favorable future development to the company. Its exploration of new ways and efficient recourses utilization paves the way for it to sustain a favorable position in the world energy marketplace. Works Cited “BEE certificate.” Sasol.com, 2012. Web. 18 Oct 2012. “Oil and Gas in South Africa.” Mbendi, 2012. Web. 18 Oct 2012. “S&P cuts Sasol ratings.” Money web. 17 Oct 2012. Web 18. Oct 2012. “Sasol Misses, Reports Profit Jump.” Zacks. 10 Sep 2012. Web. 18 Oct 2012. “Sasol Facts 2011.” Sasol.com, 2012. Web. 18 Oct 2012. Volman, Rick. “Obstacles set in front of Sasol.” News Local. 1 Oct 2012. Web. 18 Oct 2012. Yates, Jonathan. “Sasol may be attractive to Value Investors looking for High Dividends.” Emerging Money. 2 July 2012. Web. 18 Oct 2012. Read More