Cement Sector Thematic - A concrete road for net-zero emissions - HDFC Securities

Mr. Rajesh Ravi, Institutional Research Analyst, HDFC Securities

In this unique report, we will take you down a less-travelled road! The cement sector, despite its dull appearance, has been aggressively seeking its part in containing global warming to 1.5OC by 2100. This would entail an ambitious goal of net-zero CO2 emissions by 2050. The factors that have contributed to the Indian cement industry's leaner carbon footprint should continue to drive its active commitment to the aim of 20% reduction in emissions between 2020 and 2030. Policy support on waste management and India's rising green power infrastructure should catalyze these efforts. To accomplish its net-zero goal, the industry is pinning its hopes on the success of carbon capture technologies (to undertake CO2 heavy lifting from the indispensible limestone). The cement industry also remains responsible for replenishing the scarce water resource. The current decade, thus, will undoubtedly be fascinating as more companies chalk out and execute their net-zero journeys. We will continue to keep a close eye on this space.

• Indian cement sector leads in terms of CO2 footprint: As the world looks for new ways to combat global warning, the cement sector (which contributes 7% of greenhouse emissions) remains a priority. The Indian cement industry is in a better position than the global average, emitting 9% less CO2. In the past 15 years, significant clinker substitution, enhanced production efficiency, and accelerated usage of low-cost WHRS power have reduced operational costs and GHG emissions. Dalmia and ACC have the lowest carbon emissions currently. Heidelberg and Birla Corp are selling more than 90% blended cement. Shree and JK Lakshmi score high on their green power mix.
• 1.5DS in sight, sector readying for net-zero emissions by 2050: The recent thrust to limit global temperature rise to 1.5OC by year 2100 necessitates net-zero CO2 emissions by 2050! The global cement association has outlined an interim milestone of 20% emissions cut by 2030. In our assessment, the Indian cement industry is well placed to achieve its goals through continued clinker substitution, an expected surge in green power availability, and favorable policies on alternative fuels usage. We discuss these factors in detail as well as how different companies are currently positioned.
• Carbon capture - a key cog in the race to net-zero: The industry's journey to net-zero emissions between 2030 and 2050 will depend on the adoption of major technologies that can capture CO2 being released from limestone burning (which accounts for ~55-60% of total CO2 emissions). Various experiments globally pin their hopes on commercial-scale adoption of carbon capture, storage and utilisation (CCUS) technology. Dalmia's initial assessment at its Tamil Nadu plants adds to optimism. As other industries also ride through the GHG path, flyash and slag supplies will wane, thereby threatening to undo the gains accrued from clinker substitution. Here, limestone calcined clay cement (LC3) is seen as a viable long-term alternative as well as a supplement to the low-clinker portfolio in near term.
• Rising focus on water positivity: The Indian cement industry is well aware of this little-discussed yet scarce natural resource. Companies have been investing in crediting more water than they are withdrawing, resulting in improved sustainability. The GCCA member companies are already more than 4x water positive. Dalmia Bharat and Ambuja take a lead.

Source : Equity Bulls

Keywords

Cement SectorThematic HDFCSecurities