Misif: Gas price revision likely to raise costs by RM200m for steel industry

Industry also bracing for a revision in electricity tariff, which is also expected in January next year


THE steel industry is expected to see up to a RM200 million increase in costs per annum following the upward revision in gas prices slated to start next year, said Malaysian Iron and Steel Industry Federation (Misif).

Over the last four years, the natural gas tariff has risen six times from RM16.07 per one million British thermal unit (mmBtu) to RM32.52 per mmBtu — a 102% or RM16.45 per mmBtu increase within the period.

The group said the hike from Jan 1, 2018, could pose a serious threat to energy-consuming manufacturing entities in the iron and steel industry as exports have seen improvements due to cost-reduction efforts.

“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 natural gas tariff is therefore untimely just when the industry is seeing some light at the end of the tunnel,” Misif said in a statement yesterday.

Electricity and natural gas represent the second-highest production cost component in making steel products, with the industry consuming around five mmBtu to seven mmBtu of natural gas for each tonne of steel rolling activity.

“The impending gas price hike would mean additional costs 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,” Misif said, adding that a revision in electricity tariff is also expected in January next year.

The group urged the government to consider special tariff arrangements on the energy needs of the industry and to maintain natural gas price at the rate of RM26.31 per mmBtu for a period of at least two years.

It said higher production costs would invariably affect the viability and competitiveness of the domestic iron and steel industry.

The Federation of Malaysian Manufacturers (FMM) has also expressed concerns on the rise in energy prices as the sector is also expecting higher human resource- and logistics-related costs in 2018.

The FMM said the move towards market parity should give due consideration to the impact on businesses and its ability to absorb hefty increases in the costs of doing business at a short notice.

Under the Incentive-based Regulation framework introduced in December last year, the natural gas tariff will be revised every six months from Jan 1, 2017, until Dec 31, 2019, to ensure that gas prices are in line with world prices.

The move is also part of the government’s plan to rationalise subsidies and eliminate the country’s fiscal deficit by 2020. In 2016, nearly half or RM21 billion of the deficit accounted for pure subsidies.