BRUSSELS, Oct. 22, 2026 — European steel producers are dealing with carbon pricing, weak industrial consumption and international competition, while changes to the EU emissions-market framework add another factor for long-term investment planning.
According to EUROFER, EU crude steel output fell to a record 125.8 million tonnes in 2025. The association’s October 1 assessment projects apparent steel consumption growth of 0.1% in 2026, rising to 2.3% in 2027. In parallel, EU steel exports to non-EU markets declined by 20% in the first half of 2026.
Market Stability Reserve changes and EU ETS cost exposure
On October 20, EU negotiators reached a provisional agreement to raise the invalidation threshold under the Market Stability Reserve (MSR) from 400 million to 700 million carbon allowances. The agreement was announced the following day and is described as retaining a larger volume of permits as a potential long-term buffer without immediately increasing auction supply.
Steelmakers continue to face EU ETS costs that vary by production technology, output volumes and applicable free allocation. The economics differ between integrated blast-furnace operations and electric-arc-furnace production.
Integrated blast furnace-basic oxygen furnace facilities generate direct emissions through iron ore reduction and the conversion of hot metal into steel. Electric-arc furnaces can have different direct-emissions profiles and often rely on scrap or direct-reduced iron, while their operating costs are more sensitive to electricity prices and raw-material availability. Emissions comparisons therefore need to reflect production routes, product categories and system boundaries rather than national electricity-grid averages.
CBAM certificate pricing and the phase-out of free allocation
The EU’s Carbon Border Adjustment Mechanism (CBAM) entered its definitive phase on January 1, 2026, covering selected iron and steel products. The published certificate price for the third quarter of 2026 is €82.32 per tonne of CO₂ equivalent. Certificate requirements are calculated using verified or default emissions, subject to applicable free-allocation rules and other adjustments.
EU steel producers remain subject to EU ETS-related carbon costs. CBAM is designed to reduce competitive differences between domestic production and covered imports rather than compensate manufacturers for all energy expenses or ensure sufficient demand for their products.
The phase-out of free allocation remains central to plant-level economics under current legislation. The applicable CBAM factor declines from 97.5% in 2026 to 90% in 2028 and then to 51.5% in 2030, before free allocation is removed in 2034.
A separate European Commission proposal published in July 2026 would slow the reduction, including a proposed CBAM factor of 59% in 2030 and an extension of the phase-out period to 2038. These proposed changes have not yet become enacted legislation.
Downstream coverage gaps and interpretation of import trends
Competition for European producers extends beyond imported steel entering the EU as coils, sections or other covered products. Manufacturers also face competition from finished goods produced abroad using steel that may not be subject to CBAM when that finished product enters the EU.
The proposed expansion of CBAM to downstream products in 2028 aims to address this coverage gap. Steel producers generally support broader product coverage, while machinery and automotive industry groups have raised concerns about additional costs and administrative requirements. A final list of downstream products under the Combined Nomenclature (CN) has not been agreed.
Import figures require careful interpretation as well. EUROFER reported that steel imports fell by 5% in the first half of 2026 after unusually high shipments in late 2025, but the decline cannot be attributed solely to CBAM because inventory adjustments, weaker demand, safeguard measures, sanctions, energy prices and freight costs may also have affected trade flows.
Assessments also need to distinguish between flat steel, long products, finished steel and semi-finished materials because each category faces different market conditions and competitive pressures.
Investment planning across technologies and financing assumptions
Investment decisions for European steel projects require lenders to assess carbon exposure alongside iron ore and scrap prices, electricity costs, hydrogen or natural gas availability, engineering expenditure and the security of future sales. Direct-reduced iron production, electric-arc furnaces and carbon capture involve different infrastructure requirements and capital-cost assumptions.
Higher expected carbon prices can improve the relative economics of lower-emission production routes. Even so, weak margins and uncertain sales volumes can still undermine project viability despite lower emissions intensity.
Commercial performance also depends on product characteristics and end markets. Automotive flat steel has different quality requirements from reinforcing bar or heavy plate used in infrastructure projects, and even where a mill achieves a higher quoted selling price its ability to pass on costs may be limited if customers can switch to alternative suppliers that meet qualification requirements.
Capacity utilisation affects profitability as well: a recovery in construction or vehicle manufacturing can have a greater near-term impact on EBITDA than a modest change in European Union Allowance (EUA) prices when producers struggle to cover fixed operating costs.
Lender models linking volumes, routes and CBAM effects
Lenders’ financial models need to separate changes in selling prices, production volumes and manufacturing routes when evaluating steel investments. At an integrated steelworks, lower output may reduce total emissions while raising fixed costs per tonne. Converting to a lower-carbon furnace can reduce emissions intensity but also increase depreciation and financing expenses.
Banks evaluating industrial transition projects are expected to review engineering and construction plan credibility alongside evidence that customers are prepared to contract for resulting production output. CBAM may reduce part of the competitive disadvantage associated with imported steel but does not guarantee a premium for lower-carbon products or remove commercial risks linked to delayed industrial recovery.
Serbian and Turkish steelmakers also need credible installation-level emissions data to maintain access to demanding European customers. For European mills, investment decisions depend on whether cleaner production can secure either a price premium or sufficient contracted volumes needed to recover required capital expenditure.
The provisional agreement on EU allowance reserve changes one element of the industry’s long-term risk profile, while weak demand and global overcapacity remain unresolved pressures.