The EU’s Carbon Border Adjustment Mechanism has fundamentally altered how European stainless steel distributors operate, transforming what was once a sustainability reporting exercise into a high-stakes commercial challenge that now shapes pricing, supplier selection and financial risk management on a daily basis.
Michael Lund, chief executive of Danish stainless steel distributor Damstahl Group, said CBAM has created an “unusual commercial situation” where importers price products today based on a future carbon liability whose exact cost remains unknown — sometimes 18 months in advance of settlement.
“CBAM is no longer just a sustainability or compliance topic. It has become a core commercial issue,” Lund said at the Global CBAM Summit in Prague on May 28, organized by the International Association for Carbon Border Adjustment Mechanisms. “From January 1 this year, CBAM became a new reality. Today, it affects our pricing model, our competitiveness, our customer dialogue and our risk management.”
Price volatility, timing mismatch
The mechanism, which entered its definitive phase in January, requires importers to purchase certificates covering embedded emissions in six energy-intensive industries: iron and steel, aluminum, cement, electricity, fertilizers and hydrogen. But a critical timing mismatch has emerged: companies import goods today while CBAM certificates can only be purchased from February 2027 for current imports.
That delay exposes importers to significant price volatility. EU carbon allowances have swung dramatically in recent months, creating what Lund described as a “range” rather than a fixed cost. The uncertainty forces distributors to build substantial financial buffers and evaluate hedging strategies against EUA price movements — treating carbon exposure much like currency or commodity risk.
Lund said the competitive landscape in stainless steel distribution is fundamentally shifting. Historical advantages built on low-cost sourcing are giving way to capabilities in risk management, data quality assessment, supplier transparency and operational maturity.
“The biggest challenge is the uncertainty — uncertainty from data gaps, potential verification delays, default values, timing mismatches and EUA price volatility,” Lund said. “But the competitive advantage now comes from understanding risk management, data quality and supplier transparency, at least in the long term.”
The EU’s CBAM works alongside the EU Emissions Trading System to prevent carbon leakage by imposing carbon pricing on imports as Brussels phases out free allowances for domestic producers.
EU carbon prices have experienced extreme volatility in 2026, peaking above Eur90/mtCO2e before falling to around Eur63/mtCO2e in mid-March amid political pressure on the bloc’s carbon market. EU Allowances have recovered steadily since then as the European Commission promised to present a comprehensive review proposal of the EU ETS in July.
Platts, part of S&P Global Energy, assessed EU Allowances for December 2026 at Eur78.74/mtCO2e May 27, the highest since Feb. 11.
Business strategy
For Damstahl, which sells a series of flat products, bars and tubes in Nordic and Central European markets, the implications run deep. Sourcing decisions once driven primarily by price, quality and lead times now must factor in emission intensity, data quality, verification reliability and supplier transparency.
“The companies with the best operational control and risk management capabilities are likely to outperform companies that only optimize for the lowest price,” Lund said. “This creates a new competitive dynamic.”
The challenge is compounded by incomplete or unverified emissions data from suppliers, particularly those outside Europe. Default emission values — applied when actual data is unavailable — can materially overstate a product’s carbon footprint, inflating the CBAM liability. Yet importers bear the financial responsibility regardless of data quality.
Lund said Damstahl has responded with a three-pronged strategy: incorporating carbon intensity and supplier maturity into sourcing decisions; strengthening contractual terms around emission data accuracy; and continuously calculating exposure to support pricing decisions and build financial reserves.
The lack of a common baseline has created what Lund called an “inefficient” market where companies apply vastly different assumptions in their pricing models. Some remain focused primarily on compliance, while others have integrated CBAM into core commercial strategy. The maturity gap is producing distorted price dynamics as the industry learns to operate under the new framework.
“The market lacks a clear and consistent price signal,” Lund said. “This uncertainty is currently disrupting the market because companies are still learning how to operate while applying different assumptions, methodologies and risk models.”
Author: Eklavya Gupte
