This article first appeared in The Edge Financial Daily, on June 30, 2016.

KUALA LUMPUR: The federal government has revised the average price of natural gas for the non-power sector in Peninsular Malaysia from RM25.53 per million British thermal units (MMBtu) to RM27.05 per MMBtu, an increase of 5.95% effective July 15.

In a filing with Bursa Malaysia yesterday, Gas Malaysia Bhd said the revision is in line with the national rationalisation plan and gas cost pass-through mechanism, which allow prices to be revised every six months.

Gas Malaysia said the government on Tuesday had issued an instruction to the company to effect the revision of the natural gas tariff for the non-power sector in Peninsular Malaysia from July 15.

The nearly 6% hike in natural gas price will add to the cost burden on manufacturers, such as glove makers and steel millers.

Malaysian Iron and Steel Industry Federation chief executive officer Frankie Wee said the federation is disappointed with the announcement as the government has ignored its call to defer gas price hikes for two years.

“This is an inopportune time to raise the gas price as the business environment is challenging. The weakening of the ringgit, coupled with the increase in minimum wage this coming July, all of these mean higher costs of doing business,” he said when contacted.

He said the steel industry is an energy-intensive industry that consumes around five to seven MMBtu of natural gas for each tonne of steel making/rolling activity.

“The gas price hike would mean an additional cost of about RM100 million per year for the industry,” he said.

Wee said the industry is already facing fierce competition from the influx of steel imports from China.

Meanwhile, Careplus Group Bhd executive director and group chief executive officer Lim Kwee Shyan said the impact of the gas price hike will depend on how fast  glove manufacturers can pass on the cost to their clients.

“The price hike, coupled with the minimum wage, could add up to a 2% to 3% of the selling price,” he told The Edge Financial Daily when contacted.

As competition is stiff for the glove industry, he said it is more difficult for players to pass on the cost and this may hurt the margins of glove makers.

The Malaysian Rubber Glove Manufacturers Association said in a statement yesterday that glove manufacturers will have to adjust their prices due to the gas price hike.

The association estimated that the cost of this round of increase will mean an additional cost of 20 US cents (81 sen) to 30 US cents per 1,000 pieces of nitrile gloves and about 20 US cents to 50 US cents for latex gloves.

The rubber glove industry is expecting the increase in minimum wage from RM900 to RM1,000 on July 1, 2016, together with the gas price hike on July 15, 2016, to have a ripple effect on production costs.