ISLAMABAD, AUGUST 2: The decision to impose raw material royalty rates at 6% of cement or clinker sales price ex-factory will come as a significant shock to cement manufacturing companies located in Punjab.
The Punjab Mines & Mineral Department announced on Friday that the newly authorized royalty rates would take effect on July 1st, 2024.
The brokerage house Topline Securities stated in a note that this notification will have an additional price impact of Rs. 50 per bag due to additional royalty. Prior to the notification’s circulation, royalty was Rs. 20 per bag, but it is now anticipated to increase to Rs. 70 per bag for cement manufacturers located in Punjab.
According to the brokerage company, businesses are assessing the notification at this time and will raise retail prices as a result for customers.
According to Topline, this might lead to pricing differences between provinces. The province governments of Punjab and Khyber Pakhtunkhwa raised the royalty on limestone from Rs. 120 per ton to Rs. 250 per ton in the budget for FY25.
In the budget for FY25, the federal government additionally raised the federal excise charge on cement by Rs. 100 per bag. According to statistics released by the Pakistan Bureau of Statistics (PBS), as a result, cement bag prices have already climbed by around 15% month-over-month (MoM) in July 2024 to about Rs. 1,500 per bag in the North.
Topline stated that in order to pass on this impact, it anticipates that manufacturers in Punjab would eventually raise their prices by an additional Rs. 30 to 50 per bag. Nevertheless, it stated that businesses have contacted their legal counsel, which may result in them filing a lawsuit against this ruling.
Data from the All-Pakistan Cement Manufacturers Association (APCMA) indicates that Punjab accounts for around 48% of the North’s installed capacity.
DG Khan Cement (DGKC), Bestway Cement (BWCL), Dandot Cement (DNCC), Dewan Cement (DCL), Fecto Cement (FECTC), Flying Cement (FLYNG), Gharibwal Cement (GWLC), and Maple Leaf Cement (MLCF) are some of the firms that may be impacted.
Of these, Punjab is home to 100%, 48%, and 50% of MLCF, FCCL, and DGKC’s North Capacity, respectively. Plants located in Punjab produced 53%, 35%, and 100% of all domestic shipments in June 2024: FCCL, DGKC, and MLCF.
According to the brokerage firm, this will have a neutral to negative impact on cement makers in Punjab since other provinces’ players may shift their volumes in border areas that link with other provinces.
