Market and product

Yesterday, the government said electricity tariff will be raised by an average 7 per cent effective tomor-row.

National utility company Tenaga Nasional Bhd (TNB) has been allowed to increase rates by as much as 2.23 sen per kilowatt hour. This is the first hike since 2008 when it raised the tariff by 24 per cent.

The gas rate between Petroliam Nasional Bhd and TNB and independent power producers will be increased to RM13.70 per million metric British thermal unit (mmBtu) from RM10.70 per mmBtu.

As for industrial users, natural gas price will be raised 17.3 per cent to RM18 per mmBtu from RM15.35 per mmBtu in the six months to December 2011. It will then be raised a further 17.3 per cent in the next six months from January 2012.

Among heavy users of natural gas are steel millers, petrochemical producers and fertiliser plant operators.

Earlier this year, steel millers had appealed to the government to consider their competitiveness against neighbouring countries when deciding on electricity and natural gas tariff hikes.

They had appealed to extend off-peak electricity pricing to the weekends and not just limit it to night time. Rising commodity prices have already started to crimp steel millers’ profits.

When contacted by Business Times, Ann Joo Resources Bhd group managing director Datuk Lim Hong Thye said the natural gas price rise does not have significant direct impact on Ann Joo as it is not a substantial cost component.

However, he noted that electricity is the second largest cost compo-nent for electric-arc-furnace ope-rators.

“It accounts for up to 10 per cent of total costs for billet production,” he said.

In anticipation of the future hikes in energy price, Lim said Ann Joo had embarked on the blast furnace project in 2008 to integrate the iron and steel production via the hot metal charging. This will ultimately lead to reduction in electricity and natural gas consumption.

“We expect to reduce up to 40 per cent of our electricity consumption per tonnage of steel with the hot metal charging technology,” he said.

“In addition, the blast furnace off gas will be used to replace the natural gas that is currently used in the rolling mill operations. We are currently at hot commissioning stage of the blast furnace project, which is a first in Malaysia,” Lim added.

Malaysian Rubber Glove Manufacturers Association (Margma) president Lim Kwee Shyan, in an email reply to Business Times, said glove makers had hoped for at least three months lead time to the effective date for the price hikes.

“This is because our glove prices are already sold forward in the next few months,” he said.

Margma had, in many forums, asked the government to ensure that any fuel price hikes be gradual.

“The quantum of increase is relatively higher this time. It will cost up to 2 per cent higher to produce the gloves. We hope that the quantum of increase will not be this high for future fuel price hikes.

“We will have to renegotiate prices with our custo-mers as profit margins are thin lately due to hefty increases in raw material costs,” Lim said.