High energy prices, a weaker rand and strong domestic demand affected the financial performances and growth strategies of most companies listed in the oil and chemicals sectors in the past year.

The rand's depreciation in May last year brought some relief to exporters' margins, and stimulated demand from the local manufacturing, mining and agricultural sectors. An easing in the oil price also reduced upward pressure on the prices of downstream chemical feedstocks.

For Sasol, the giant in the sector, all of these were important. The group published record financial results in the year to June 2006, with reported operating profit rising 44%, to R14,38bn. After the 12% profit growth in the first half of 2007, another record could be achieved this year.

The sustained period of higher oil prices has had a profound effect on the profile of Sasol's profits and on its longer-term strategy. Synfuels have long been its core business, but in the late 1990s it was diversifying into petrochemicals and other downstream businesses and seemed to be having some success in diversifying its profit sources.

Last year one of its large chemicals operations, the olefins and surfactants business, which was created out of the €1,3bn Condea acquisition in 2001, was up for sale. In the 2007 interims, the synfuels operation contributed almost 69% of group operating profit, with 17,2% coming from oil and gas. Chemical operations such as polymers and solvents provided only 13,8%.

Sasol has since said it will retain and restructure the olefins and surfactants business as the sales process has not produced acceptable offers. In 2006 this operation reported sales of R18,6bn, or 22,5% of the group turnover, but made an operating loss of R3,6bn.

In other areas, including its large capital programme in SA and elsewhere, Sasol has been moving ahead strongly, though not without difficulties. CE Pat Davies says the worldwide increase in large engineering and construction contracts has resulted in a global shortage of resources and caused strains in these industries.

At the Oryx gas-to-liquids (GTL) plant in Qatar, held 49% by Sasol and a joint venture with Qatar Petroleum, the commissioning and start-up of production was planned for the middle of last year but was deferred until the first half of 2007.

In a project update in May this year, the group said the venture had been operational for more than three months. However, operating levels were below planned levels. The main problem, says Sasol, was that fine material produced in the process was above design level. Until the production of fine material is reduced, management expects only a marginal cash contribution from the project.

There have also been commissioning delays with the fuel quality enhancement and polymer expansion project, Project Turbo, one of the group's largest capex projects in SA. The interims noted "moderate delays and increased costs of certain projects", including the polypropylene and octene three plants in Secunda and the Arya Sasol plants in Iran.

However, Sasol has continued to make progress towards realising its ambition to build a global synfuels business. Oryx will be the largest GTL plant in the world. Last year, the group signed co-operation agreements to determine the feasibility of building two coal-to-liquid (CTL) plants in China. It could also build a new CTL plant in SA, though it's likely that will depend partly on support from government as well as the outcome of proposals of a windfall profits tax on the domestic fuels industry.

Elsewhere in the chemicals sector, Afrox has been focusing on its core gases business since it divested its health-care division a couple of years ago. This group has been going through a period of significant change in other respects too.

Its controlling shareholder changed last year when The Linde Group of Germany acquired Afrox's UK-based parent, BOC. That led to a change in its financial year-end, from September to December. Early this year Afrox CE Rick Hogben retired and was succeeded by a newcomer to the industry, Tjaart Kruger, previously a senior executive at Tiger Brands.

With domestic consumption of its gases at record high levels, and shortages - caused by shutdowns at three oil refineries - of some feedstocks for chemical products such as liquid petroleum gas (LPG), the group was unable to meet demand in some markets last year.

Timing differences between the surge in demand and the completion of Afrox's expansion projects worsened the shortfalls. The group is spending R600m on capital projects. However, management has warned that LPG may have to be imported if the feedstock shortages continue.

Though the buoyant demand has led to short-term operational strains, these market conditions have encouraged management to set ambitious targets for the medium term. These include a doubling of operating profit in five years.

AECI, with operations in explosives, chemicals, speciality fibres, paint and property, is also investing extensively in modernising its production facilities. Its explosives division (AEL) has several projects aimed at improving its manufacturing processes in SA to produce quality products more cost effectively. A new factory, being developed in several phases, will substantially increase production capacity by mid-2009.

Though the SA mining industry still represents this division's main market, it has been making good progress in developing its activities in Central, West and East Africa. Its Zambian operation, AEL Zambia, whose revenues more than doubled in the past three years, was listed on the Lusaka Stock Exchange last year.

AECI has focused largely on the production or distribution of speciality chemicals, with increasing emphasis on the manufacturing and mining sectors. An important exception is its property division, Heartland Properties, which continues to make impressive returns from land the group has owned for many years. In the year to December 2006, it made an operating profit of R314m, or 22% of the group total. With limited land ready for release and sale at present, however, management has warned that the figure will be much lower in 2007.

Omnia stands out as a company that has demonstrated the benefits of diversification. For many years, its main business was supplying fertilisers to the agricultural sector, in a volatile market. In the early 1990s, it diversified into the mining sector, as a supplier of explosives and related products. Three years ago, it acquired Protea Chemicals, which supplies chemicals to a wide range of markets.

The growth of these divisions represented a marked change in Omnia's business and risk profile, though it remained closely linked to the agricultural sector. Four years ago, the agricultural division contributed 87% of group operating profit. When the domestic maize crop declined sharply in the year to March 2006, fertiliser demand slumped and this division's operating profit was down by 69%. Thanks to good results in other operations (excepting polymers) group earnings declined by a more modest 29%.

The interim results to September showed improvements all round. The agricultural division benefited from a recovery in demand for fertiliser; and higher international prices of polymer helped the group to lift margins in its chemical division.

CE Rod Humphris says the mining division's growth should gain from opportunities elsewhere in Africa. The need for fertilisers, he adds, is a long-term reality. The SA fertiliser market is showing "every sign" of recovery, he says, and will be complemented by continued sales to other African countries.