Punjab-based cement manufacturing plants are set to face a major shock as rates of royalty on raw material have been determined at 6 percent of the ex-factory sale price of cement or clinker.
According to a notification issued by the Punjab Mines & Mineral Department on Friday, the newly approved rates of royalty are effective from July 01, 2024.
In a note, brokerage house Topline Securities said this notification will have an incremental price impact of Rs.50 per bag due to additional royalty as before the circulation of this notification royalty stood at Rs. 20 per bag which is now expected to increase to Rs. 70 per bag for Punjab based cement manufacturers.
The brokerage house said companies are currently evaluating the notification and will pass on the impact to consumers in terms of higher retail prices.
Topline said that it believes this may create a disparity of prices in different provinces. In budget FY25, the provincial governments of Punjab and Khyber Pakhtunkhwa already increased royalty on limestone from Rs. 120 per ton to Rs. 250 per ton.
However, this notification of 6 percent of the ex-factory price is likely to supersede that Rs. 250 per ton notification.
FED on cement
The federal government also increased federal excise duty on cement by Rs. 100 per bag in the budget for FY25. As a result of this, cement bag prices have already increased by around 15 percent month-on-month (MoM) in July 2024 to around Rs. 1,500 per bag in the North, according to data issued by the Pakistan Bureau of Statistics (PBS).
Cement prices to go up in Punjab
Topline said it expects Punjab-based manufacturers to eventually further increase their prices by Rs. 30-50 per bag to pass on this impact. However, it said that companies have engaged their legal teams which might lead to approaching courts against this decision.
Companies impacted by an increase in royalty
As per All Pakistan Cement Manufacturers Association (APCMA) data, around 48 percent of installed capacity in the North is located in Punjab.
Amongst the companies that will be affected are, Bestway Cement (BWCL), Dandot Cement (DNCC), Dewan Cement (DCL), DG Khan Cement (DGKC), Fauji Cement (FCCL), Fecto Cement (FECTC), Flying Cement (FLYNG), Gharibwal Cement (GWLC) and Maple Leaf Cement (MLCF).
Out of these, MLCF, FCCL, and DGKC have 100 percent, 48 percent, and 50 percent of North Capacity based in Punjab. In June 2024 FCCL, DGKC, and MLCF generated 53 percent, 35 percent, and 100 percent of total domestic dispatches from Punjab-based plants.
The brokerage house said this is neutral to negative for Punjab-based cement manufacturers as their volumes of the border areas (connecting with other provinces) may get diverted by other provinces players.
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