Gas price hike to cost local iron & steel industry an extra RM100m a year

PETALING JAYA: The local iron and steel industry will bear an additional cost of about RM100 million a year due to the natural gas price increase that will take effect from July 15, according to the Malaysian Iron and Steel Industry Federation (Misif).

“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. While the authority might deem it fit to increase the tariff rates every so often, the industry on the contrary would have difficulties in absorbing and passing the increasing costs to end-users,” Misif said in a statement.

Electricity and natural gas are essential for making steel products and represent the second highest production cost component. The steel industry consumes around five to seven MMBtu of natural gas for each tonne of steel making/rolling activity, it said.

The average gas tariff will be revised upwards by RM1.52 per one million British thermal unit (MMBtu) or 5.95% from RM25.53 per MMBtu to RM27.05 per MMBtu for the non-power sector in Peninsular Malaysia, with effect from July 15.

Over the last two years, the natural gas tariff has increased five times, from RM16.07 per MMBtu to RM27.05 per MMBtu, a staggering increase of RM10.98 per MMBtu or 68%.

“We are greatly perturbed with the relentless pursuit by the authority and the government to callously adhere to the drastic national subsidy rationalisation plan, which allows prices to be revised every six months without carefully considering the implications the increase would have on energy-intensive industries such as the iron and steel industry.

“This is difficult for any industry to endure, what more energy consuming manufacturing entities in the iron and steel industry.”

Misif said the domestic iron and steel industry is still facing fierce competition from imported steel products and there has been severe influx of imported iron and steel materials. This, it added, is not an opportune time to raise the natural gas price due to the challenging business environment.

“We are truly dismayed with this price increase of natural gas. We call on the government to adopt a moratorium of any further increase in natural gas price for at least two years,” Misif said.