Sasol plunges below R100 on JPMorgan downgrade

Sasol’s shares plunged below R100 on Monday (19 January), a more than 16% drop from the peak of R121 reached a week ago, after JPMorgan downgraded the stock from neutral to underweight.

The bank said it had cut its price target from R107 to R94 based on expectations of weaker oil prices as geopolitical tensions subside, alongside a stronger rand. Sasol’s shares are down more than 70% since 2022, having bottomed at R55 in April 2025.

The JPMorgan downgrade comes on top of negative outlooks from credit agencies Moody’s and S&P Global Ratings.

The bank said the downgrade was based in part on the impact of a stronger rand on Sasol’s earnings, given its exposure to foreign-currency revenues.  Free cash flow could turn negative should oil prices hit $50 s barrel (bbl) and the rand goes to R16/$, JPMorgan said in a note to investors.

“Sasol weakened on Friday following a downgrade from JPMorgan’s Alex Comer, who shifted the stock to underweight. The move reflects growing concern around currency sensitivity, softer oil and chemicals pricing, and a less compelling risk-reward profile at current levels, prompting investors to reassess medium-term upside,” says Kea Nonyana, market analyst at PrimeXBT.

The souring on Sasol contrasts with upbeat reports from investment banks a year ago, when HSBC and Morgan Stanley hiked their price forecasts to more than R180.

That was when the rand was trading at R18.60/$ and Brent crude oil was priced at $75/bbl.

Oil and chemical prices

A lot has changed in the last year. Oil and chemical prices have been falling as supply-demand imbalances weigh on the company’s earnings outlook. S&P Global revised its outlook to negative in October 2025, expecting weak core earnings through the 2026 and 2027 financial years due to these factors, with funds from operations to debt potentially falling below 30%.

“The global oil and chemical markets remain entrenched in a structurally challenged environment, with oversupply dynamics and muted end-market demand weighing on margins and utilisation rates,” said S&P.

Compounding these challenges is the potential for oversupply in global oil markets. Demand is waning as supply continues to expand. Brent crude is forecast to average $66/bbl in 2026 and $65/bbl in 2027, down from the $75/bbl previously forecast by S&P.

Strong balance sheet

Sasol has committed to strengthening its balance sheet and inoculating its income statement from the kind of turbulence noted by the ratings agencies. One of these is the plan to increase Secunda Synfuels output from 6.7 million tonnes (Mt) in fiscal 2025 to greater than 7.4Mt by fiscal 2028.

Combined with other cost-saving measures and increased use of own-mine coal, Sasol is targeting a long-term oil breakeven of $50/bbl by fiscal 2028, down from $59/bbl in fiscal 2025.

Sasol’s revenue has been on a steady leak, with earnings trending downwards due partly to lower chemical prices and falling demand in key markets like Europe, Asia and the US.

The fuels business could be in for a rough ride in 2026, the with oil prices potential sagging to $40/bbl unless Opec (Organisation of the Petroleum Exporting Countries) intervenes to throttle supply.

There remains ongoing mistrust of Sasol management’s ability to execute its strategy, as recent share price volatility shows it is vulnerable to oil price movements and a strong currency.

Market sentiment

Analyst sentiment remains mixed to negative, with ratings downgrades from Morgan Stanley in 2025 and JPMorgan last week, both citing weak cash flow prospects, lower volumes, and currency strength.

There is a correlation between Sasol and oil prices, which have softened to around $62/bbl from $75/bbl a year ago. Barring major geopolitical tensions in Venezuela or the Middle East, oil prices are likely to remain subdued throughout 2026 and into 2027.

That, combined with a 13% jump in the value of the ZAR/USD exchange rate over the last year, has compressed margins and taken the shine off earnings forecasts.

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