Europe’s Steel Dilemma: How We Got Here and Why the Industry Is on Edge
Europe’s steel industry is going through a tense and uncertain phase. Prices are unstable, trading activity is slow, and confidence across the supply chain is fragile. Producers, buyers, and traders are all reacting to the same reality: major regulatory change is approaching, but the details are still unclear. In recent months, even small price movements of €10–30 per tonne have attracted attention, not because demand is strong, but because the market is already pricing in future regulatory costs. To understand why the market feels frozen today, it helps to look at how this situation developed over time.
How Europe Lost Its Comfort Zone
For much of the past century, Europe was a strong and reliable steel producer. Its mills supplied domestic industries and exported high-quality products across the world. Costs were higher than in some regions, but this was balanced by efficiency, quality, and trade protections.
Over the last two decades, the global steel landscape changed dramatically. Production capacity expanded aggressively outside Europe, particularly in Asia. China alone now accounts for more than half of global steel production, creating periodic surpluses that spill into export markets. Steel could be produced at much lower costs, often with fewer environmental constraints. As global demand slowed, surplus steel began entering international markets in large volumes, including Europe.
At the same time, Europe committed itself to ambitious climate goals. Carbon emissions were priced, environmental rules tightened, and energy costs increased sharply. Between 2021 and 2023, industrial electricity and gas prices in parts of Europe rose by two to three times at their peak. European steel became cleaner, but also structurally more expensive. This created a growing gap between domestic producers and foreign suppliers, one that temporary safeguards could only partially manage.
CBAM and the Promise of a Level Playing Field
To address this imbalance, the European Union introduced the Carbon Border Adjustment Mechanism, commonly referred to as CBAM. The basic idea is straightforward. If European producers pay a cost for carbon emissions, imported steel should face a similar burden.
In theory, this discourages dirtier production methods and prevents unfair competition. In reality, the system relies heavily on emissions data. Importers must declare how much carbon was emitted during production. When verified data is unavailable, default values are applied, and these defaults assume very high emissions.
For steel, these default values are significant. For example, the default carbon intensity for imported steel slab can exceed 3 tonnes of CO₂ per tonne of steel. When linked to an EU carbon price of roughly €70–90 per tonne of CO₂, this implies a potential CBAM cost of €200–270 per tonne of slab if no verified data is provided. This is where concern has intensified. Many suppliers cannot yet provide reliable emissions data, and buyers fear that default values will make imports far more expensive than justified.
Italian rerollers, who depend heavily on imported slabs, have been especially vocal, arguing that the current setup is economically unworkable and risks disrupting supply chains once full payments begin in 2026.
Markets slow as uncertainity takes over
As CBAM moves closer to full implementation in 2026, uncertainty has begun shaping behavior across Europe’s steel markets. Trading activity has slowed noticeably. Buyers hesitate to place large orders because future costs are unclear. Sellers resist lowering prices, expecting that imports will become more expensive under the new system.
This hesitation is visible across products. Heavy plate prices have risen modestly, typically by 1–3 percent in recent weeks, driven more by expectations than by strong demand. Long steel markets remain quiet, particularly as seasonal slowdowns combine with regulatory uncertainty. Hot rolled coil trading has largely stalled, with some market participants reporting volumes down 20–30 percent compared with more stable periods.
In regions such as Romania, prices appear stable on the surface, but transactions often require discounts of €40–60 per tonne to close deals. This reflects weak demand and limited liquidity rather than confidence in the market.
Imports continue while producers endure the pain
One of the most uncomfortable aspects of the current situation is that imports remain strong despite the upcoming regulations. CBAM is not yet fully enforced, and this gap has allowed low-priced steel to continue entering Europe.
The impact on producers is becoming increasingly visible. Thyssenkrupp’s decision to cut production of electrical steel in Germany and France stands out as a warning sign. These are advanced facilities, not marginal operations. When companies of this scale reduce output, it signals that competitive pressure has become structural rather than temporary.
This has added urgency to political discussions. The European Council has agreed on a negotiating mandate for new steel protection rules intended to replace existing safeguards when they expire in 2026. The objective is to curb import surges while ensuring steel remains available and affordable for downstream industries, which collectively consume hundreds of millions of tonnes of steel each year.
Timing, Trust, and the Road Ahead
At its core, the issue facing Europe’s steel industry is one of timing and trust. CBAM is designed as a long-term solution, but its short-term effects have introduced uncertainty into an already fragile market. Producers do not yet know how strong future protection will be. Buyers do not know how expensive imports will become. Traders are unsure which assumptions will hold over the next year.
Estimates suggest that once CBAM is fully phased in, carbon costs could add 20–40 percent to the price of certain imported steel products under higher carbon price scenarios. Europe’s steel sector is not collapsing, but it is clearly uncomfortable. Demand remains weak, confidence is thin, and regulation is still taking shape.
Whether CBAM ultimately strengthens European steel or adds further strain will depend on how quickly emissions verification improves and how effectively trade protections adapt to market realities. For now, the industry waits. And in a business built on long-term investment and heavy assets, waiting can be the hardest part.