CBAM to slash Indian export margins: ICRA

The EU’s Carbon Border Adjustment Mechanism (CBAM) compliance requirements could pull down the profits of Indian steel exporters, says credit rating agency ICRA.

CBAM compliance requirements are expected to slash Indian steel exporters’ margins by around $60-165/tonne from 2026 to 2034, Kallanish notes.

During CBAM’s transitional phase from 1 October 2023 to 31 December 2025, the focus will be on carbon reporting, but without any financial adjustment for EU importers.

From 1 January 2026 onwards, EU importers will have to buy CBAM certificates corresponding to the embedded emissions above the EU Emissions Trading System (ETS) benchmark levels.

Apart from India, some of the other large steel exporters to the EU are Turkey, South Korea, Taiwan, Vietnam, China and Japan. However, the carbon footprint of Indian steel mills is significantly higher than that of key competitors, ICRA says.

“The prospect of the incidence of a large carbon tax from the March quarter of the fiscal year ending 31 March 2026 (FY26) can incentivise EU importers to shift towards steel producers with a low carbon footprint, much ahead of the outer deadline,” ICRA says.

“Therefore, unless Indian mills can materially bring down their carbon footprint during the transition period, it can potentially lead to lower profits and a loss of market share in Europe,” the rating agency concludes.

Sayed Aameer India