KUALA LUMPUR: The steel industry, which is a major user of power,  expects operating costs to rise by an additional RM200mil a year from the impending gas price hike which takes effect on Jan 1, 2018.

The Malaysian Iron and Steel Industry Federation (MISIF) said on Monday electricity and natural gas are crucial for making steel products and the second highest production cost component. 

The steel industry consumes around five to seven million British thermal units (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,” it said.

MISIF said the viability and competitiveness of the domestic iron and steel industry would be affected by the rise in natural gas price.

On the cards is the electricity tariff revision for Peninsular Malaysia in January 2018.

MISIF was commenting on the announcement by Gas Malaysia Bhd on Nov 29 about 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 MMBtu or 14.23% from RM26.46 per MMBtu to RM30.90 MMBtu for the non-power sector, including steel producers, in Peninsular Malaysia from Jan 1 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%.

MISIF said over the last four years, the natural gas tariff has increased six times, from RM16.07 per MMBtu to RM32.52 per MMBtu  – an increase of RM16.45 per MMBtu or 102%. 

“This is extremely difficult for any industries to endure, what more on energy-consuming manufacturing entities in the iron and steel industry,” it said.