KUCHING: The higher natural gas tariff, as announced recently by Gas Malaysia Bhd (Gas Malaysia) has been deemed ‘untimely’ and a ‘bane to the iron and steel industry.
This comes after the announcement by Gas Malaysia on November 29, 2017 on the revision of the natural gas tariff for the non-power sector in Peninsular Malaysia.
The average natural gas base tariff will be revised upwards by RM3.85 per one million British thermal unit (MMBtu) or 14.23 per cent from RM26.46 per MMBtu to RM30.90 MMBtu for the non-power sector, including steel producers, in Peninsular Malaysia from January 1, 2018 to June 30, 2018.
In addition to this, under the new gas cost pass-through (GCPT) mechanism, a surcharge of RM1.62 per MMBtu will apply to all tariff categories due to the higher liquefied natural gas price against the reference price in the base tariff during this period.
This translates to an average effective tariff of RM32.52 per MMBtu across all categories, at an average increase of RM6.06 per MMBtu or 22.90 per cent.
According to the Malaysian Iron and Steel Industry Federation (MISIF), over the last four years, the natural gas tariff has increased six times — from RM16.07 per MMBtu to RM32.52 per MMBtu, which represents a staggering increase of RM16.45 per MMBtu or 102 per cent.
“This is extremely difficult for any industries to endure, what more on energy-consuming manufacturing entities in the iron and steel industry,” MISIF said in a statement.
“Energy issues related to the steel industry have been regularly highlighted in our numerous engagements with the Energy Commission and Gas Malaysia Berhad.
“Over the last one year, the industry has seen an improvement in its overall performance: increase in exports, reduction in imports, normalisation in steel prices, and increase in capacity utilisation.
“The increase in export volume are supported by aggressive cost down efforts by millers in order to be competitive and we started to see the results.
“The increase in natural gas tariff is therefore untimely just when the industry is seeing some light at the end of the tunnel.”
Electricity and natural gas are essential utilities for making steel products and represent the second highest production cost component, MISIF added. The steel industry consumes around five to seven MMBtu of natural gas for each tonne of steel making/rolling activity.
The impending gas price hike would mean an additional cost of about RM200 million per year for the industry, notwithstanding the additional costs already suffered from the earlier five tariff increases, all within such a short period of time.
“The increase in natural gas price and the consequent effect on higher production cost would invariably affect the viability and competitiveness of the domestic iron and steel industry,” it forewarned.
“The steel industry has been operating under an extremely challenging business environment the last few years.
Burdening operating cost has been continuously rising due to relentless hikes in electricity and natural gas tariffs; Minimum Retirement Age Act 2012; Goods and Services Tax (GST) since April 2015; Minimum Wages Order 2016; mandatory annual health checks for foreign workers; Employment Insurance Schemeand Employer Mandatory Commitment from 2018; and duty drawback mechanism.
“We thus urge the government to consider special tariff arrangements on the energy needs of the domestic iron and steel industry and moratorium to maintain natural gas price at the rate RM26.31 per MMBtu for a period of at least two years.”