Manufacturers to bear brunt of higher gas rates

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KUALA LUMPUR: Manufacturing plants which burn natural gas will have to bear the brunt of higher fuel costs. Gas Malaysia Bhd announced yesterday that it has raised the natural gas selling price by around 2% for the non-power sector in Peninsular Malaysia after the government made a tariff revision.

In a filing with Bursa Malaysia, Gas Malaysia highlighted that the purchase price of gas procured from Petroliam Nasional Bhd (Petronas) will be “accordingly adjusted upwards”.

“There will be no change to the selling prices for customers under category A. Category A customers represent the residential segment,” it said in the statement, adding that the tariff increase does not apply to liquefied petroleum gas.

“The approval of the tariff increase by the government will be subject to a six-monthly adjustment of both the selling and purchase prices in an effort to address subsidy rationalisation,” said the company.

The government’s decision to revise the natural gas tariff has received a mixed response.

Datuk Soh Thian Lai, president of the Malaysian Iron and Steel Industry Federation (Misif) has bemoaned the decision and said that the government should be “more considerate” of steel industry players.

“The government’s decision has come at a bad time. The international oil prices are falling and I cannot understand why the decision to increase natural gas price should be made now,” Soh told The Edge Financial Daily. “I think they could have delayed the decision since the industry has seen a lot of increase in costs this year due to subsidy rationalisation. On top of that, the goods and services tax will be enforced on April 1 next year. The steel industry will struggle,” he said.

Soh said that natural gas constitutes 5% to 10% of production cost for steelmakers and is particularly concerned about how any increase would impact Malaysia’s competitiveness in terms of its exports.

“Even a small increase in cost will have a big impact on steel players. We are selling our steel products at very low prices. We are no longer able to pass the increase in cost to our customers as this will hurt the competitiveness of ... steel exports,” he said.

The rubber gloves industry, on the other hand, has a much more accepting tone in its response to the government’s revision of gas price.

Edward Yip, of Kossan Rubber Industries Bhd group corporate affairs, said the decision was “long expected”.

“Cost has been escalating in the past two years and we have seen even bigger cost increases due to government policies such as the implementation of minimum wage and electricity tariff hike recently.”

“Natural gas takes up about 7% of our production cost. If you put the tariff revision into context, it is not something that we should be overly concerned about,” he said.

This article first appeared in The Edge Financial Daily, on October 30, 2014.