BRUSSELS, Oct. 22, 2026 — European steel producers are dealing with carbon pricing pressures, weak industrial consumption and international competition. Changes to the EU emissions-market framework are adding another factor to long-term investment planning.
According to EUROFER, EU crude steel production 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. EUROFER also reported that 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 Oct. 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 intended to retain a larger volume of permits as a potential long-term buffer, without immediately increasing auction supply.
Steelmakers continue to face EU ETS-related costs that vary with production technology, output volumes and applicable free allocation. Integrated blast-furnace operations and electric-arc-furnace production have different cost and emissions economics.
Integrated blast furnace-basic oxygen furnace facilities produce direct emissions through iron ore reduction and the conversion of hot metal into steel. Electric-arc furnaces can operate with different direct-emissions profiles and rely heavily on scrap or direct-reduced iron, while operating costs are more sensitive to electricity prices and raw-material availability.
The emissions performance comparisons cited in the reporting require account for production routes, product categories and system boundaries rather than relying on national electricity-grid averages.
CBAM certificate pricing, free allocation phase-out and proposed revisions
The EU’s Carbon Border Adjustment Mechanism (CBAM) entered its definitive phase on Jan. 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 and other adjustments. CBAM is described as reducing competitive disparity between domestic production and covered imports rather than compensating manufacturers for all energy expenses or ensuring sufficient demand for their products.
The phase-out of free allocation is identified as central to plant-level economics. Under legislation currently in force, the applicable CBAM factor declines from 97.5% in 2026 to 90% in 2028 and 51.5% in 2030, before free allocation is removed completely in 2034.
A separate European Commission proposal published in July 2026 would slow this reduction, including a proposed CBAM factor of 59% in 2030 and an extension of the phase-out period to 2038. The proposed changes are described as not yet enacted legislation.
Downstream coverage gaps and interpretation of import figures
The competitive impact described in the reporting extends beyond imported steel entering the EU market as coils, sections or other covered products. European manufacturers also face competition from finished goods produced abroad using steel that may not itself be subject to CBAM when the finished product enters the EU.
The proposed expansion of CBAM to downstream products in 2028 is intended to address this potential coverage gap. Steel producers favour 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.
E UROFER reported that steel imports fell by 5% in the first half of 2026 after unusually high shipments in late 2025. The decline is described as not attributable to CBAM alone, with inventory adjustments, weaker demand, safeguard measures, sanctions, energy prices and freight costs also cited as possible influences on trade flows.
The reporting also calls for assessments that distinguish between flat steel, long products, finished steel and semi-finished materials because these categories face different market conditions and competitive pressures.
Lender assessments for decarbonisation investments across technologies
Lenders evaluating investment decisions in European steel need to assess carbon exposure alongside iron ore and scrap prices, electricity costs, hydrogen or natural gas availability, engineering expenditure and security of future sales. Direct-reduced iron production, electric-arc furnaces and carbon capture involve different infrastructure requirements and capital-cost assumptions.
The reporting notes that higher expected carbon prices can improve relative economics for lower-emission production. It also states that weak margins and uncertain sales volumes can still undermine project viability even where a technology offers lower emissions intensity.
Lender focus on volumes, pricing pass-through and customer contracting
The financial models described require separating changes in selling prices, production volumes and manufacturing routes. At an integrated steelworks, lower output may reduce total emissions while increasing fixed costs per tonne.
The reporting also states that converting to a lower-carbon furnace can reduce emissions intensity but increase depreciation and financing expenses. Banks assessing industrial transition projects are described as examining engineering and construction plan credibility alongside evidence that customers are prepared to contract for resulting production.
Serbia and Turkey: installation-level emissions data for European customers
The reporting says Serbian and Turkish steelmakers must demonstrate credible installation-level emissions data to maintain access to demanding European customers. For European mills, investment decisions depend on whether cleaner production can secure a price premium or sufficient contracted volumes to recover required capital expenditure.
The provisional agreement on changes to the EU allowance reserve is described as altering one element of the industry’s long-term risk profile. Weak demand and global steel overcapacity remain unresolved pressures.