Indian steel, cement makers face uphill task in quest to go green

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Metal and cement makers, which are India’s largest contributors to emissions, are making steady progress in emission cuts. As they move up the green curve, industry experts and executives say challenges of costs, market and supply chain will need to be addressed.

India aims to achieve net-zero carbon by 2070 and hit 50 percent clean-energy share by 2030. In addition to domestic long-term targets, Indian manufacturers are also under immediate pressure from legislations in their export markets. Europe, for instance, has proposed a Carbon Border Adjustment Tax on imports of high-carbon goods. While India’s cement exports are minuscule, for Indian steel, Europe is a major export market.

Major producers including UltraTech Cement, Steel Authority of India (SAIL), Hindalco Industries, JSW Steel and Tata Steel, all have reported a year-on-year reduction in emissions in FY23. The reduction comes largely due to the use of renewable energy and alternative sources of fuel and materials.

The steel and cement sectors contribute 45 percent of India’s industrial emissions, as estimated by rating agency Crisil. Industry analysts and experts point out, newer avenues of carbon-emission cuts and other measures will be needed to hit the net-zero mark.

Product before market

Despite a lack of domestic demand for low-carbon products, domestic and international regulatory requirements are pushing both metal and cement makers to think of investments in low-carbon. The ability to access finance, which is rapidly turning ESG-conscious, is another factor at play.

“Today the reality is nobody pays you extra for low-carbon aluminium,” said Satish Pai, managing director for Hindalco Industries in a recent interview with Moneycontrol. It is a view, multiple metal producers in India have voiced in the past, seeking government financial incentives for green metal. This has not stopped Hindalco and other Indian major metal and cement producers from considering low-carbon products.

This year the Ministry of Steel also set out to form a task force to deliberate on various aspects of green steel. A concrete financial package for greening steel in India is yet to emerge.

Supply-chain constraints

Swati Dsouza, Energy Analyst with IEEFA, says the ministry’s efforts must be followed with a finance framework to help large and MSME companies to access credit for greening. “Constraint will be felt on the supply chains as they try to meet export-led demand for low-carbon metals and domestic demand for regular steel. A framework will help large and MSME companies access different kinds of finance (ESG, green bonds, etc) to make the required technical changes to meet low-carbon metal demand, both domestically and internationally,” she said.

A similar finding emerged in the ESG preparedness survey report by Deloitte released in May, where the consulting firm said 78 percent of the participants identified managing supply-chain emissions as a potential obstacle to achieving net-zero targets.

Costs

In the case of cement makers, irrespective of demand, greening has so far been easy and profitable. Ravleen Sethi, associate director – CareEdge Ratings, points out that cost-benefit is one of the major motivations for cement companies to go green.

“Cost for WHRS (Waste Heat Recovery System) and wind energy is on an average 1/6th to 1/8th lower than the power procured from the grid or thermal power. Similarly, the cost of solar energy is approximately half of a thermal power plant or grid procurement. On the fuel side, the recent run-up in coal and pet coke prices has led to an increased focus on the use of alternative fuels, as they are procured largely free of cost,” she said.

Industry experts have noted that Indian cement’s emission intensity remains lower than global averages due to the higher blending of alternate raw materials.

Both cement and steel makers in India have leapt for the low-hanging fruit of renewable power to meet emission cut targets. However, Alain Gabriel, Morgan Stanley’s Head of Europe Metals and Mining Research, in a May 18 report noted that “China and India’s current access to low-cost renewables would only cover a small proportion of output.” The note on Greening the Steel Industry said green hydrogen, renewable electricity and electric arc furnaces will be critical to the transition.

To be sure attempts are being made to test the viability of these options. In April, Tata Steel commenced the trial injection of hydrogen gas using 40 percent of the injection systems in one of its blast furnaces at Jamshedpur, a global first in terms of quantity.

These attempts are, however, limited by costs. TV Narendran, managing director and chief executive officer for Tata Steel in a post-earnings call with analysts in April said the hydrogen used in this attempt cost the company $12 per kg. He added so far there has been no government support to procure hydrogen at a cheaper cost. Narendran pegged $2/kg or less as ideal to make economic sense. “If you're looking at using hydrogen and scale as a reductant to reduce DRI, then you're looking at hydrogen to be made available at around $2/kg or less. And obviously, all this must be green hydrogen if it has to make sense,” he said.

This is a sentiment echoed in the Deloitte survey, where the cost associated with adopting net-zero technologies was listed as the second top-most obstacle. The Morgan Stanley report noted investments required to decarbonise the steel industry are likely to exceed $1,200 per metric tonne of capacity.

Ironically, the more steel and power manufacturers green themselves, the Indian cement makers will struggle to find slag and fly ash, a by-product from steel and power, used to make less emission-intense cement.

A Crisil Sustainability yearbook for 2022 noted that cement sector investments in other technologies such as Carbon Capture Utilisation and Storage (CCUS) will involve huge capex requirements. The yearbook said cement makers may have to consider other plans such as afforestation to mitigate emissions as “net-zero plans for the cement sector are tougher to meet than most other manufacturing sectors”.