MISIF: Increases in electricity cost working against the steel industry
KUALA LUMPUR: The Malaysian Iron and Steel Industry Federation (MISIF) has noted with grave concern of the perpetual increase in electricity tariff imposed to the iron and steel industry at a time when steel prices have dropped tremendously, both domestically and internationally.
In its press statement, MISIF referred to the Energy Commission’s (EC) December 14, 2018 announcement on the upward adjustment of the Imbalance Cost Pass Through (ICPT). The current surcharge of 1.35 sen per kilowatt hour (kWh) will be increased to 2.55 sen per kWh for industrial users effective from March 1, 2019.
MISIF is concerned that the plight and trepidations of the industry have hardly been taken into consideration seriously in spite of the numerous engagements with EC, Tenaga Nasional Bhd (TNB) and the relevant ministries such as the Ministry of International Trade and Industry (MITI) and the Ministry of Energy, Science, Technology, Environment and Climate Change (MESTECC).
Being an energy intensive industry, electricity is an essential utility besides natural gas and represents the second highest production cost component after the raw material for the iron and steel industry.
Producers are striving to manage these challenges while containing their costs to enable them to compete competitively with other regional producers. However, any perpetual increases in electricity cost hampers any recovery effort by the industry.
In just a short span of four years since 2014, the average “on and off peak” electricity rate and maximum demand price have gone up by about 18 per cent and 12 per cent, respectively.
Thus, if the March 2019 rates are levied as announced, the overall annual electricity cost of RM855 million borne by the steel industry (January-June 2018 rate basis) will escalate to RM1 billion, up by 17.3 per cent or RM148 million in additional cost.
While major steel mills’ main concern is more of survival with margins subjected to the vagaries of internationally trade commodities, TNB earnings, on the other hand, are more stable and resilient.
Margins which should have been susceptible to fluctuating fuel prices seemed to be protected through the cost pass-through to end users. To date, TNB has been making steady cumulative profits of RM37.66 billion since 2014, while major steel mills are striving as continuing concern in quest of recovery.