PETALING JAYA: The increase in electricity tariff, which can result in an additional cost of more than RM100mil per annum to the iron and steel industry, may impede the recovery of the sector.
According to the Malaysian Iron and Steel Industry Federation (Misif), the industry, despite having emerged from the doldrums, continued to operate in an extremely challenging business environment. Hence, the sudden and perpetual increase in power tariff could put the industry under renewed pressure and affect its competitiveness.
“The iron and steel industry encountered the worst onslaught of cheap imports for the past five years and is just about to recover with some nascent growth in the horizon filled with challenges,” Misif said in a statement yesterday.
“But the recent surge in natural gas and electricity price in the second half of 2018 will hamper the recovery effort of the industry and the Malaysian economy at large, especially the last increase of both utilities was just six months ago,” added the industry association, which represents 139 manufacturers of iron and steel products in the country.
The Energy Commission on June 29 announced the adjustment to the Imbalance Cost Pass Through (ICPT) by cancelling the rebate of 1.52 sen per kilowatt per hour (kWh) and simultaneously imposing a surcharge of 1.35 sen/kWh effective from July 1 to Dec 31 this year.
Misif said the net impact of that adjustment amounted to an increase of 2.87 sen/kWh, or 8%-16%, for industrial users.
This would translate into more than RM100mil per annum of additional cost to the industry that currently consumed more than 650 kWh per tonne of electricity.
“Electricity and natural gas are essential utilities in the production process in the iron and steel industry. To be competitive against imports and stay competitive in the international market, the iron and steel industry is in critical need of a competitive energy cost,” Misif said.
Misif noted that over the last four years, the natural gas tariff had been increased eight times, from RM16.07 per one million British thermal units (mmbtu) to RM32.69 per mmbtu, representing a staggering increase of RM16.62 per mmbtu or 103%.
“The additional gas cost incurred by the iron and steel industry is estimated to be more than RM107mil under the new tariff against the applicable rate in May 2014,” Misif said.
According to Misif, the industry continued to operate under an extremely challenging business environment.
In addition to the increasing utility cost, it said, the industry had to face the rising cost of doing business due to several factors, including the implementation of the Employment Insurance Scheme, the ongoing duty drawback mechanism (for the importation of steel raw materials to produce finished goods for export purposes), the minimum wage (current levels pending upward review), stringent credit access, levy/rehiring cost of foreign workers cost due to rising minimum wages, and mandatory annual health checks for foreign workers.
“Therefore, in order not to impede the nascent growth of the industry and to prepare the industry to stay competitive regionally and globally, government support and assistance is necessary to aid the domestic iron and steel industry,” Misif said, noting that the industry contributed 2.9% to Malaysia’s gross domestic product (GDP) in 2016.
It said the industry had the potential to generate up to 6.5% of GDP growth and could generate up to 225,000 job opportunities in 2020.
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