Do I need Malt Vinegar for pickling onions?
As a serious lover of pickled onions, I have sampled many. You don't need malt for onions, and for some people using malt is a no no.

I confess to loving the eye watering tartness of onions picked in malt, but if that is a problem you can add white sugar which can cut the sharpness of the taste.

So I use malt for onions, and white for other pickles, the White vinegar I use is distilled vinegar something like this 

http://www.mysupermarket.co.uk/asda-compare-prices/Oils_And_Vinegar/Sarsons_Distilled_Vinegar_for_Pickling_114L.html

The op mentions cheap cleaning / food grade vinegar.
If you use this you must not add water as it will affect the ph balance of the picking mix and the food might not pickle and spoil.  And are you really sure it's food grade - check closely 

You could try a blend of 50/50 malt and white.

Here is a basic recipe for malt picked onions

http://www.bbcgoodfood.com/recipes/1826697/pickled-onions

But you can use almost any vinegar i.e.

http://www.deliaonline.com/recipes/pickled-shallots-in-sherry-vinegar.html

Also a general guide to pickling 

http://www.pickyourown.org/makingpickles.htm

Top tips

Malt vinegar for onions

White distilled for others

Add sugar if mix is too strong

Experiment with vinegars - try pickling with Apple cider vinegar.

My favourite recipe is baby red onions pickled in a blend of balsamic and white vinegars.

Enjoy