KUALA LUMPUR (July 1): The impending natural gas price hike would mean an additional cost of about RM100 million per year for the steel industry, says the Malaysian Iron and Steel Industry Federation (MISIF), adding this will further dampen the local steel players’ competitiveness amid severe influx of imported steel from China.

The federation said that over the last two years, the natural gas tariff has gone up five times, from RM16.07 per MMBtu to RM27.05 per MMBtu, a staggering increase of RM10.98 per MMBtu or 68%.

“This is extremely difficult for any industry to endure, what more to energy-consuming manufacturing entities in the iron and steel industry,” said MISIF president Dato’ Soh Thian Lai said in a statement today.

He said government should impose a moratorium on any further increase in natural gas price for at least two years.  

“The impending gas price hike would mean an additional cost of about RM100 million per year for the industry, notwithstanding the additional costs already suffered from the earlier four tariff increases, all within such a short period of time,” he added.

Soh said 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,” he said.

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

Soh also noted that the domestic iron and steel industry is still facing fierce competition from imported steel products from all over the world, and that there has been severe influx of imported iron and steel materials into the country.

“This is not an opportune time to raise the natural gas price, due to [the] very challenging business environment,” he said.

For the domestic iron and steel industry, 2015 was again marked by intense competition from cheap imports, particularly from China, resulting in many steel companies struggling to keep their businesses afloat, according to Soh.

Due to excess production capacity, the slowdown in domestic consumption and the weak domestic steel prices, Chinese steel producers intensified their push for sales in the export markets.

In 2015, China’s steel exports to the world surpassed the 110 million metric tonnes (MT) mark, an all-time high.

“Malaysia, like the rest of the world, could not avoid the tsunami of iron and steel imports from China. The domestic demand has been overwhelmed by cheaper imports, mainly from China,” said Soh.

According to him, last year alone, Malaysia’s total iron and steel imports reached a staggering 7.92 million tonnes, with China alone contributing 43.4% (3.44 million tonnes) of the imports.

“The increase in natural gas price will adversely affect our competitiveness in the international markets and would severely jeopardize our exports of steel products, which have also seen a declining trend in recent years (3.32 million tonnes in 2011 to 2.34 million tonnes in 2015),” he said.