President of the Malaysian Rubber Glove Manufacturers Association (MARGMA), Denis Low Jau Foo lambasted Gas Malaysia Berhad (GMB) for making sudden and surprise announcement of gas price hike again.
Commenting on the announcement by GMB on 12 July 2019, he said that the three-day notice released on Friday evening for gas tariff hike which takes immediate effect today was as good as no notice given.
As mentioned repeatedly in the past, in rubber glove export business, orders are taken two to three months ahead based on prevailing production costs by the foreign buyers. The sudden new natural gas tariff has disturbed the market equilibrium forcefully and resulted in unanticipated cost increase. Malaysian manufacturers must absorb the cost increase in order to honour the estimated RM5billion of orders taken before the announcement. As a result, Malaysia would stand to lose an estimated RM47.2mil foreign revenue resulting from this sudden gas tariff increase over the next three months.
The natural gas price hike from RM32.38 to RM34.12 per MMBtu is equivalent to a 5.37 percent increase for Tariff Category F. The increase is too sudden and the quantum is too high with just 3 days’ notice for the manufacturers over a weekend and to be effective on 15 July 2019. This tariff is higher than the base tariff at RM32.74 per MMBtu as announced in the road map on 28 Dec 2016.
MARGMA estimates that the natural gas price hike this round will lead to an increase in production cost of USD0.30 to USD0.80 per 1000pcs of nitrile glove and about USD0.35 to USD0.85 for latex glove. Due to the slim profit margin, all manufacturers will have to manage their production costs carefully depending on the product type and their manufacturing process and energy consumption profile in order not to make losses.
MARGMA advises its members to inform their customers immediately about this sudden increase in natural gas tariff which impacted the production costs substantially. As the production cost has inevitably increased, it is only logical that buyers will become acutely aware that our rubber gloves will now be more costly going forward while having the luxury of not having to absorb the higher cost for the next two to three months as orders are always locked in at least two or three months ahead.
“The gas price hike does not benefit the industry. This action by GMB is too abrupt and destructive and is adding cost to doing business, when such cost could have been passed on to buyers. It does not benefit the Nation and for the next two to three months ahead, it is the buyers that are gaining on what could have been extra revenue for the Nation.”
“If given sufficient time and notice, such increased cost could have been passed on to the international buyers. It is not smart and wise at all especially when MARGMA has time and again requested GMB to give us early notice. GMB has done a disservice not just to the Rubber Glove Industry but also to Malaysia when the government is busy reviving our economy!” commented Low.
MARGMA urges the Government to look into and capitalise on our natural advantage such as natural gas to spur industrial growth and not just sell off our gas as commodities and benefit others. When natural gas is used to benefit Malaysian industries, tens of thousands of jobs can be created locally and eventually the country would benefit the most through the multiple levels of taxes, job opportunities and a better use of our natural resources. We should seize the gift from heaven and multiply its inherent worth.
On another note, there seems to be a lack in clarity by the Energy Commission in their role to monitor the energy sector. The Energy Commission is shoving the new Third Party Access policy down the throats of natural gas users and GMB. It is absurd that while the new policy is not properly explained, industry players are expected to sign new Gas Supply Agreements without even been given a complete agreement for their review by 30 September 2019.
- MARGMA had engaged with GMB recently and understand that the gas price will increase tremendously when the deregulation of the gas market happens on 1 January 2020.
When cost and competitive elements are involved, Energy Commission needs to understand that industries need to be informed, be engaged and to deliberate jointly on the best applicable and winning solutions. Policies must always be commercially viable and easy to follow through and not be too complicated. When manufacturers require to hire more personnel just to monitor the usage of natural gas, it is just being inefficient as it is an unnecessary additional cost to doing business. A good policy that is being implemented in a haphazard manner will do more harm than bringing its intended benefits.