Europe’s steel market is facing “extreme instability” as the Middle East war sends energy prices soaring and disrupts supply chains, Cinzia Vezzosi, president of Italian steel trade association Assofermet, said March 24.
“Energy costs have obviously become a problem for everyone,” Vezzosi said.
For steelmakers, the impact goes beyond energy. “It’s not just energy costs, but also the outlook of not having the same level of production we used to have,” Vezzosi said, warning that supply security and price stability are now at risk.
Across Europe, energy-intensive industries, including steel, are already scaling back activity as costs surge and logistics tighten.
The conversation highlights mounting strain on imports. “If you add shipping costs on top of CBAM, it becomes extremely difficult to source from abroad,” Vezzosi said, pointing to the EU’s Carbon Border Adjustment Mechanism as an additional burden on already elevated costs.
CBAM-ETS concerns
According to Antonio Gozzi, chairman of Federacciai, the Italian steelmakers association, the European Commission should rethink its carbon pricing regime, warning that current rules risk accelerating plant closures and distorting competition during an energy crisis.
Gozzi said the bloc’s Emissions Trading System is penalizing even its cleanest producers. Electric-arc furnace operators, who rely on electricity priced via the marginal gas system, are effectively paying a carbon cost embedded in power prices. “We are among the most virtuous in Europe, yet we pay more than others for electricity because of ETS,” he said.
Italy produces around 80% of its annual steel via EAF, Electric Arc furnace route production, which mainly melts scrap and emits much less, compared to the other two routes BF and DRI. EAF emits around 0.3-0.7 tons of CO2 per metric ton of steel.
Gozzi’s first demand is temporary relief: exempt thermoelectric generators from CO2 allowance costs during the crisis, to prevent carbon costs of Eur20-30/MWh from feeding through into power prices.
The second is structural: preserve free allocation of ETS permits to keep blast furnaces operating. Without them, he warned, primary steelmaking could become uneconomic.
A coalition of member states, including Italy and several central and eastern European countries, has reopened debate on free allowances—once seen as untouchable. For now, uncertainty prevails, as industry awaits signals from Brussels on whether relief is forthcoming.
According to S&P Global Energy CERA, Italy is the most exposed European market to lost Qatari LNG. Italy imported 6.7 billion cubic meters of Qatari LNG in 2025, which comprised a third of its LNG imports, compared with the EU average of 7%. The 6.36 Bcm/year Edison SpA–QatarEnergy contract equates to 11% of Italy’s annual gas demand and 36% of total underground storage capacity.
Reconstruction potential
Despite the immediate pressures, Gozzi said potential demand from post-conflict reconstruction could transform the outlook for European steel.
“It is a moment of great uncertainty,” he said. “It could have very positive outcomes if the conflicts were to find some kind of resolution. You can imagine what the steel consumption driven by the reconstruction of Ukraine would mean, the reconstruction in the Gulf countries, the investments they already had were very large and now the reconstruction of Syria, the reconstruction of Gaza. There is the prospect of very significant steel consumption.”
“There could be benefits for Italy, resulting from the end of wars and from peace, but when will this happen? That’s the point,” he said.
Platts, part of S&P Global Energy, assessed on March 23 HRC EXW Italy at Eur690/mt unchanged over the day.
Italy is the second largest steel producer in Europe after Germany, in 2025 it produced 20.7 million mt of crude steel up by 3.4% on the year.
Author: Annalisa Villa
