The iron and steel industry will need a competitive energy price to keep its production cost at manageable level.
KUCHING: The Malaysian Iron and Steel Industry Federation (Misif) is calling on the government to immediately reduce tariffs for electricity and natural gas, citing any delay in lowering the electricity and natural gas tariffs would undermine, if not negate, efforts by the industry to remain competitive.
The government increased electricity tariff between 17 to 19 per cent effective January 2014 for industrial users, citing among others the escalation of international crude oil prices, which were hovering around US$100 to US$110 during that time.
The price has since dropped by more than 50 per cent to below US$50 per barrel.
Substantial declines have also been witnessed on international natural gas (from more than US$4 per million British thermal unit (MMBtu) to below US$3 MMBtu) and thermal coal prices (from US$60/short ton to US$45/short ton) over the last six months period.
“The iron and steel industry is an energy intensive industry that consumes more than 800kwh per metric tonne of electricity from steelmaking to rolling activities alone. Electricity and natural gas are essential utilities for making steel products,” explained president Datuk Soh Thian Lai in a statement yesterday.
“Misif had previously highlighted that the increase in electricity tariff in January 2014 and subsequently on natural gas tariff in May 2014 would result in an additional cost of more than RM200 million and RM130 million per year respectively to the industry.
“The iron and steel industry will obviously need a competitive energy price to keep its production cost at manageable level.
Hence, with the drastic decline in crude oil, natural gas and thermal coal prices, the government should similarly adjust and reduce the electricity and natural gas tariffs without further delay.”
Misif expects the reduction should not be anything less than 20 per cent, adding that any delay in lowering the electricity and natural gas tariffs would undermine, if not negate, efforts by the industry to remain competitive in this very challenging time.
“We understand that other countries such as Singapore and Thailand have already lowered their electricity tariffs, to boost domestic industries and enhance the competitiveness of manufacturers.
The government should do likewise to avoid Malaysia losing her competitive edge in ASEAN and the global markets.
“The government should also have no qualms in reducing the tariffs in view of the sterling performance of Tenaga Nasional Berhad in the last financial year.”
Lowering the tariffs, it said, will assist the domestic iron and steel industry tide over the current difficult time as a result of ringgit’s weakening, the impact of basic salary regulation, rising inflationary pressure, recent imposition of online service charge on the online renewal system for foreign workers permit, the forthcoming introduction of the Goods and Services Tax (GST) and most significantly, the influx of cheap steel material imports into Malaysia.
Meanwhile, the influx of imports remain a major concern for the Malaysian iron and steel industry.
“The domestic demand has been overwhelmed by cheaper imports mainly from China. China currently has a production capacity of 1 billion MT, of which an excess overcapacity of about 250 – 300 million MT has flooded the international market and it is now exported to Asia, Africa, Americas and Europe.
“In Malaysia, there was a drastic import of steel products – an increase of 75 per cent over the 2009-2013 period.”