Increase in Royalty to Lead Cement Prices Increase by Rs50 per Bag for Punjab-Based Plants

Staff Report:In a notice circulated by the Government of Punjab dated August 1, 2024, the royalty rates on raw material for cement manufacturers have been set at 6% of the ex-factory sale price of cement or clinker. The notice specifies limestone and argillaceous clay used for cement manufacturing, effective from July 1, 2024.

According to industry sources, this notification will result in an incremental price impact of Rs50 per bag due to the additional royalty. Previously, the royalty was Rs20 per bag, which is now expected to increase to Rs70 per bag (approximately 6% of the ex-factory price) for Punjab-based cement manufacturers.TikTok releases its Q1 2024 Community Guidelines Enforcement Report

Companies are currently evaluating the notification and are likely to pass on the impact to consumers through higher retail prices. However, this may create a price disparity between different provinces.

In the FY25 budget, the provincial governments of Punjab and KPK had already increased the royalty on limestone from Rs120 per ton to Rs250 per ton. This new notification of 6% of the ex-factory price is likely to supersede the Rs250 per ton rate.

Additionally, the federal government has increased the Federal Excise Duty (FED) on cement by Rs100 per bag. Consequently, cement bag prices have already risen by approximately 15% month-over-month in July 2024, reaching around Rs1,500 per bag in the North, according to PBS data.

We now expect Punjab-based manufacturers to further increase their prices by Rs30-50 per bag to account for this impact. However, companies have engaged their legal teams, which may lead to court challenges against this decision.

According to APCMA data, about 48% of the installed capacity in the North is located in Punjab. The companies affected include 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).

Among these, MLCF, FCCL, and DGKC have 100%, 48%, and 50% of their North capacity based in Punjab. In June 2024, FCCL, DGKC, and MLCF generated 53%, 35%, and 100% of their total domestic dispatches from Punjab-based plants.

We believe this development is neutral to negative for Punjab-based cement manufacturers, as their volumes in border areas connecting with other provinces may be impacted by competition from players in other provinces,” Topline said.