This article first appeared in The Edge Financial Daily on December 5, 2017

KUALA LUMPUR: Energy-intensive industries glove manufacturing and the steel sectors are lamenting the 22.9% hike in natural gas price — a move which is in line with the government’s target to raise the price of domestic gas to be on par with the international level.

The Malaysian Iron and Steel Industry Federation (Misif) said in a statement that the continued increase in natural gas tariff — which has risen 102% from four years ago — is making it “extremely difficult” for the iron and steel industry players.

As such, Misif is urging the government to consider special tariff arrangements on the energy needs of the domestic iron and steel industry, and a moratorium to maintain the price of natural gas at the rate RM26.31 per MMBtu for a period of at least two years.

Misif pointed out that the increase in fuel price will lift production costs, which would in turn affect the viability and competitiveness of the domestic steel industry —  whose operating costs are already being hit by the goods and services tax, relentless hikes in electricity tariffs and the duty drawback mechanism (import for export), among others.

“Over the last one year, the industry has seen an improvement in its overall performance, an increase in exports, reduction in imports, normalisation of steel prices, and increase in capacity utilisation. The increase in export volume is 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,” Misif said.

The impending gas price hike, it added, would result in an additional RM200 million a year for the industry. It noted that the country has seen a tariff hike for natural gas six times over the last four years, from RM16.07 per MMBtu to RM32.52 per MMBtu, a rise of RM16.45 per MMBtu or 102%.

Meanwhile, the Malaysian Rubber Glove Manufacturers Association (Margma) said that there are already many cost increments that its members need to deal with currently when commenting on the gas price hike.

Margma president Denis Low Jau Foo said manufacturers have to factor in the annual increment of wages, besides the impact of the employment insurance system (EIS) the government is imposing next year and the impending revision of the minimum wage policy.

“Margma can understand the gradual subsidy removal by the government as part of its subsidy rationalisation programme. But still, a 22.9% increase is rather steep, as we need to be mindful of competition from our neighbours,” said Low.

Low said that the glove manufacturing industry expects 2017 to be a record revenue year as worldwide demand for medical and surgical gloves has been extraordinarily strong, with all manufacturers running at optimum capacities and sitting in an oversold position.

“This is brought on mainly by acute healthcare consciousness, regulatory requirement to wear gloves in developed and developing nations, and the crackdown of vinyl glove factories in China due to environmental issues.

“Malaysia stands to reap RM16.2 billion in revenue this year, having achieved RM7.95 billion in the first six months,” Low added.

Against the backdrop of higher production costs, Low commented that glove makers will have to raise their prices in order to retain its profitability.