Deutsche Bank
Research
Deutsche Carbon Alignment Framework (DeCAF)Volume and value for equities: aligned or
mis
aligned
DB Research Ideas and Insight
EU Cement:the misaligned beneficiaries of the EU ETS. DeCAF
deep-dive. Buzzi(buy), Titan and Heidelberg (both hold) gain
EU Autos: DeCAF deep-dive on corporate alignment for
tightening emissions standards. Upgrade to global EV forecasts.
Buy VW and Renault
China auto uncertainties in growth and policy. Prefer Geelyand
NIO (both buy)
Updates on Shimano (Buy –electric bikes), Umicore(Hold -
battery),Glencore(Buy –self-help cash cow)
Insight into Oil Majors reserves (Shell hold; DeCAF preferred
BP, Equinorand TOTAL –all Buy)
Macro trends
Annual energy outlooks vs the Green New Deal. Insights from
the US EIA, BP, TOTAL and Glencore
Transition tracker
Business combinations in EV services
Oil sector legal pressures
Renewable auctions and energy storage
This edition’s useful read
ShareAction: Leading approaches to climate change in the
European banking sector (link)
Espresso Shot #19: highlighting DB research and tracking energy transition
DeCAF reports: click here
Sector DeCAF summaries: click here
Deutsche Bank
Research
Deutsche Carbon Alignment Framework (DeCAF)Framework encompasses volume, margin, value and timing
DeCAFat work: examples from across our stock universe
Four mega-themes at play:
Cost of Carbon, Mobility, Power and Energy Efficiency
Glencore(Buy)
–Valuation overhang on coal
exposure and litigation issues
–Explicit short cycle coal
strategy. Cobalt disposal
–Remainder provides strong
core metals exposure
–Engagement potential
Toyota(Buy)
–Leader in
alternative fleet
–Options in hybrid,
EV and H2
Exxon**
-Premium stock, not
repositioning
-Long refining, oil
-High emissions
intensity
Volume
downside
Value downsideValue upside
Volume
upside
Fortum
Sell
Schneider
Buy
Exxon
Glencore
Buy
KAZ
Minerals
Hold
Toyota
Buy
Albemarle
Hold
TOTAL
Buy
Siemens
Hold
W
China
Cement
Buy
Shimano
Buy
Carbon cash
cow
Green growthGreen bubble
Stranded
carbon
Evonik
Buy
Zhuzhou
Buy
BP
Buy
Enel
Buy
ORSTED
Buy
NorskHydro (Buy)
Hydro power offers low CO2
intensity in a high intensity
subsector, targeting net zero
emissions by 2020
**Exxon–not rated –seeFITT: Big Oil and the Energy Transition link
Atlas
Copco
Sell
Umicore
Hold
Solvay
Hold
GM
Buy
Miittal
Buy
Samsung SDI
Buy
NHY
Buy
DB estimates. Priced 10 December
Atlas Copco(Sell)
–Leader in compressors, vacuum
pumps, air treatment, materials
joining
–Premium valuation excessive into
weakening semi and auto cycle
Deutsche Bank
Research
Incumbents: European Cement
Research
Misaligned: beneficiaries of the EU carbon price regime (ETS)Source Deutsche BankSource: Deutsche Bank
EU cement emissions have fallen since 1990
But the CO2 intensity improvement has been small
Cement CO2 allowances vs emissions since 2005
EBIT gains from CO2 2008-11 ~6%
The sheer volume of global cement production makes the process a problem. At 0.54tCO2 per tonneof cement, the
industry accounts for ~5% of global CO2. With just over 60% of these emissions related to the process of turning limestone
into cement, rather then the energy needed to do so, the sector poses a long-term challenge to sub-2 degree pathways
Within the EU carbon price regime (ETS), cement qualifies for free allowances to protect it from external competition. The
number of allowances declines over time, but so far (especially after the GFS) the absolute decline in demand for cement has
been faster. Cement companies have been able to both profit from their surplus allocation (selling on ) and stockpile
against the chance of subsequent tightening.
European cement emissions have fallen since 1990, but ~28% of the fall is due to lower demand, with only ~13% due to
reduced emissions intensity –and vast majority of this has come from operating adjustments in power source and clinker ratio
than actual capexon better technology.
The structure of the ETS has also worked against capacity closure: closed plants lose their ETS allowances, lower
capacity utilization does not. EU cement CU is now only 65%vs 80% in the US.
After the strong rise in EU CO2 prices in 2018, and in anticipation of ETS Phase 4 in 2021, what’s the outlook for EU
cement and carbon
Excess created CO2
trading profits and
emissions stockpile
Only 13% gain
in 26 years