In a notice circulated by the Government of Punjab, dated August 01, 2024, rates of royalty on raw material for cement manufacturers have been determined at 6% of the ex-factory sale price of Cement or Clinker.
§ The notice mentions the names of Limestone and Argillaceous clay used for cement manufacturing. The notification is effective from July 01, 2024.
§ According to channel checks from the Cement Sector, this notification will have an incremental price impact of Rs50/bag due to additional royalty. Before the circulation of this notification, royalty stood at Rs20/bag, which is now expected to increase to Rs70/bag (~6% of the ex-factory price) for Punjab-based Cement manufacturers.
§ As per channel checks, companies evaluate the notification and will pass on the impact to consumers regarding higher retail prices. However, we believe this may create a price disparity in different provinces.
§ In budget FY25, the provincial governments of Punjab and KPK already increased the royalty on limestone from Rs120 per ton to Rs250 per ton. However, this notification of 6% of the ex-factory price is likely to supersede that Rs250/ton notification.
§ Alongside these provincial-level hikes, the federal government also increased FED on cement by Rs100/bag. As a result, cement bag prices have already increased by ~15% MoM in July 2024 to ~Rs1,500/bag in the North, according to PBS data.
§ We now expect Punjab-based manufacturers to increase their prices by Rs30-50/bag to pass on this impact. However, as per our channel checks, companies have engaged their legal teams, which might lead to approaching courts against this decision.
§ As per APCMA data, ~48% 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%, 48% and 50% of North Capacity based in Punjab. In Jun-24, FCCL, DGKC, and MLCF generated 53%, 35% and 100% of total domestic dispatches from Punjab-based plants.
§ We believe, 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.
Courtesy – Topline Pakistan Research
