Material Insights · Understanding the Material World

Cement and Energy-intensive industry

Cement is one of the core energy-intensive industries: its kilns used about 3.6 GJ of heat per tonne of clinker and its mills about 96 kWh of electricity per tonne of cement worldwide in 2012, so fuel and power are among its largest costs and the main target of efficiency policy.

Cement (commodity) and Energy-intensive industry (energy): 5 relationships.

How they are linked

1. Kiln fuel

Physical flow · Strong · Cement kilns consume heat from coal, petcoke and other fuels

Clinker is made by heating limestone and clay in a kiln until they partly fuse, which needs a large amount of fuel per tonne whatever the plant's size.

  • about 3.6 GJ heat per tonne of clinker, world average, 2012
  • 3,733 MJ heat per tonne of clinker, European average, 2010
  • about 3,300 MJ best practice in preheater and precalciner kilns

World average kiln heat use fell from 3.72 to 3.58 GJ per tonne of clinker between 2011 and 2012. The best preheater and precalciner kilns sit near 3.3 GJ, and CEMBUREAU sees no breakthrough in sight that would raise thermal efficiency much further, so cutting fuel cost now relies mainly on cheaper or alternative fuels and lower clinker content.

Sources: IEA; CEMBUREAU

2. Grinding power

Physical flow · Medium · Cement plants draw electricity for grinding and fans

Raw materials, coal and clinker are all ground to powder, and kiln fans and conveyors run continuously, so electricity is a second large energy bill after fuel.

  • about 96 kWh electricity per tonne of cement, world, 2012
  • about 89 kWh electricity per tonne of cement, India average, 2005
  • about 2,250 MW captive power capacity of Indian cement plants, 2007

Indian plants averaged about 89 kWh per tonne in 2005 against 63 kWh in the best plant, close to Japan's 65 kWh, which shows how much grinding equipment matters. Indian producers had built about 2,250 MW of captive power by 2007, which partly shields them from grid tariffs and helps explain why cement prices follow electricity prices only loosely.

Sources: IEA; CSTEP

3. Price link: energy cost

Cost and price · Weak · Both ways

Fuel and power are major costs in cement, so energy price shocks should reach cement prices, but captive generation, fuel switching and local market structure blunt the effect.

  • 0.07 monthly change correlation
  • 0.29 12-month change correlation
  • 1.06 fitted elasticity

Monthly moves barely line up, at 0.07, while yearly moves correlate at 0.29, with the closest match at a lag of about five months. That pattern fits costs that are passed on slowly through periodic price rises rather than month by month.

Sources: Material Insights (World Bank, FRED, IMF data)

4. Cement is a member and a supplier

Physical flow · Direct · Cement → Energy-intensive industry

Cement is one of the five sectors grouped as energy-intensive industry, alongside steel, aluminium, ammonia and chlor-alkali, and concrete is also used to build the plants of the other four.

  • almost 40% energy share of manufacturing cost in some Indian cement plants, 2012 study
  • about 15 to 20% coal share of total cost, same study

Because energy can approach two fifths of cost in some plants, cement behaves like the rest of the group: profitability turns on fuel and power prices. Concrete used to build steel, aluminium and chemical plants is small in volume compared with cement's main markets in housing and infrastructure.

Sources: CSTEP

5. Efficiency targets

Policy · High in India · Same policy instruments cover cement and other heavy industry

India's Perform, Achieve and Trade scheme sets specific energy targets for large plants across energy-intensive sectors, cement included, and lets them trade savings certificates.

  • 126 cement plants covered by PAT so far
  • 75 of 85 cement designated consumers in PAT cycle 1 that recorded energy savings

Cement plants using more than 30,000 tonnes of oil equivalent a year qualify as designated consumers. In the first cycle the 75 that recorded savings together beat the target by about 0.67 million toe, which fits a sector whose best plants were already close to world best practice; further gains depend more on clinker substitution and fuel switching than on kiln efficiency.

Sources: Bureau of Energy Efficiency, Government of India; CSTEP; CSTEP

For investors

Key learnings

  1. Fuel and power can make up close to 40% of cost in some Indian cement plants, so energy prices drive margins more than they drive selling prices.
  2. The weak, lagged price correlation means energy shocks usually compress cement margins first and are recovered later through price rises.
  3. Kilns are already near best practice on heat use, so cost advantage now comes from fuel sourcing, captive and waste heat power, and blended cements.

What to track

  • Power and fuel cost per tonne reported by listed cement makers: A rise ahead of selling prices signals a margin squeeze for the quarter (Quarterly · company results)
  • Imported thermal coal and petcoke prices: The main swing in kiln fuel cost for coastal and import-reliant plants (Weekly · Argus, Platts; ICE Newcastle coal futures)
  • Cement and energy price correlation: A rising correlation would show faster pass-through of energy costs (Monthly · Material Insights correlation page)

For policymakers

Key learnings

  1. Cement is a large and concentrated energy user, which makes it a natural target for plant-level efficiency and carbon rules.
  2. India's best cement plants already matched world best electricity use in the 2000s, so remaining savings lie mainly in clinker substitution, alternative fuels and waste heat recovery.
  3. Captive power gives cement makers resilience but locks in coal use unless renewable or waste heat supply replaces it.

What to track

  • Specific energy consumption of PAT designated consumers: Shows whether plants keep improving once easy savings are taken (Each PAT cycle · Bureau of Energy Efficiency)
  • Clinker to cement ratio: Lower ratios cut fuel use and process CO2 per tonne of cement (Yearly · industry and GNR data)

India

India is the second largest cement producer after China, with about 500 Mt a year of installed capacity on BEE figures, and 126 of its plants have been covered by the PAT efficiency scheme; coal alone is about 15 to 20% of cost.

Sources

  1. Tracking industrial energy efficiency (Tracking Clean Energy Progress presentation), IEA (2014)
  2. Thermal energy efficiency (Cement roadmap), CEMBUREAU (2013)
  3. A study of energy efficiency in the Indian cement industry, CSTEP (2012)
  4. Price correlation, Material Insights, Material Insights (World Bank, FRED, IMF data)
  5. Cement sector, Bureau of Energy Efficiency, Government of India
  6. A study of energy efficiency in the Indian cement industry (summary page), CSTEP (2012)