CBAM rollout to gradually shift trade flows
CBAM is prepared for a full rollout as of January 1, and its introduction is expected to reshape the trade patterns in the European steel market massively – the change was already visible in 2025.
The European Commission has now finalized the benchmark and default emissions values that will determine how much carbon cost importers must pay once CBAM becomes fully operational in January 2026.
These values, especially the default emissions assigned to each exporting country, vary widely and create major cost differences between origins.
Consequently, trade flows are expected to shift for a number of reasons.
Default values are extremely high for some major flat steel and semis suppliers, namely China, India and Indonesia, much higher than in the previously leaked draft from November 2025.
For example, China’s slab default value was raised to 3.167 tCO₂e/t compared with 1.75 tCO₂e/t in November drafts, which translates into roughly €144 per tonne in CBAM charges, making imports far less competitive.
Indian and Indonesian hot-rolled coil could face €200-600 ($234-703) per tonne in CBAM costs, erasing the advantage of low base prices.
Among other suppliers very few, including Brazil saw milder increases, making them “manageable” CBAM-compliant origins and therefore more or less attractive to EU buyers.
Annual mark-ups, specifically 10% in 2026, 20% in 2027 and 30% from 2028, make high-default-value countries even less viable over time unless they can provide verified actual emissions, which many cannot yet do.
Because CBAM cost exposure differs dramatically by origin, buyers will change sourcing strategies to avoid punitive default values and prioritize countries with lower default values and/or verified emissions, or greener production routes, for example scrap- electric-arc furnace (EAF).
So far, to manage unpredictable CBAM costs, European buyers were prioritising import bookings on DDP basis – which at least partially accounted for CBAM costs of imported goods.
For this reason, Fastmarkets launched its DDP price assessment for imported flat steel in November.
Growing protectionism: new trade regime to cut steel imports in 50%
Another groundbreaking change the European steel market will face in 2026 is new trade regime, set to replace existing safeguards measures.
In October 2025, The European Commission has proposed a deep overhaul of steel import safeguards, slashing tariff-free quotas by roughly 47% and imposing a 50% duty on any imports above the new limits, up from the current 25%. Only 18.3 million tonnes of steel would be allowed into the EU duty-free each year, versus much higher current import volumes.
The reform aims to shield EU steelmakers from global overcapacity, restore domestic utilization levels, and return import market shares to pre-crisis norms. It also tightens traceability with a mandatory “melt and pour” origin rule, blocking relabeling or transshipment.
Because actual EU steel demand remains weak while imports have surged by 26.36 million tonne in 2024, which represents 6.4% year-on-year growth, according to Eurofer data. For flat steel market, share of imports in total consumption was estimated by industry sources to have surged to 25%, the new quotas would represent severe cuts for many categories, Fastmarkets reported.
Meanwhile, actual imports was actually much higher than suggested quotas.
The regime is likely to replace current safeguards measures as of July 1 2026, several sources said.
“It’s unlikely that the Commission will do early introduction as of April 1, the regime is too complex, they will need more time,” a buyer in Italy said.
Such reductions are expected to create tightness in key flat steel grades, lift in-quota prices and push buyers toward greater reliance on EU mills, especially because CBAM also raises the cost of imports from high-emission origins, Fastmarkets understands.
Producers welcomed the proposal, while import-dependent industries warn of supply disruptions. The UK — with 80% of its steel exports going to the EU — calls the plan “existentially threatening,” while other third-country exporters anticipate diversion risks.
The proposal still requires approval by Parliament and Council but is expected to take effect mid-2026, when current safeguards expire, sources familiar with the matter told Fastmarkets.
On top of all this, in September, the European Commission imposed anti-dumping duties on imports of certain hot-rolled flat products originating in Egypt, Japan and Vietnam. replacing the provisional duties applied earlier in 2025. The measures targets nearly half of HRC imports into he bloc.
Also in September, The European Commission initiated an anti-dumping investigation targeting cold-rolled flat steel products (CRC) originating in India, Japan, Taiwan, Turkey and Vietnam. The investigation covers around 70% of all CRC imports into the EU.
Among the latest updates, on December 3, the European Commission presented a new registration process for CRC products from India, Japan, Taiwan, Turkey and Vietnam. Under the new rule, duties would be applied retroactively on imports from those jurisdictions that were found to have been dumped into the EU market between July 1 2024, and June 30 2025.
CBAM costs uncertainty, sweeping quota cuts under new regime, and a widening web of anti-dumping actions — have made steel imports into the EU “very challenging,” market participants said. By mid-2026, buyers will be navigating a radically altered landscape in which access to third-country steel is not only more expensive, but also more restricted, administratively complex and very cost-sensitive.
But while import restrictions efforts are aimed at helping local producers to increase their market share, the question arises as to whether they will be willing to increase capacity utilization rate from current 70% roughly given that this would entail higher carbon emissions for which they will have to pay.
Costs of EU carbon permits have been hovering at around €80-85 per tonne in December 2025, but it is expected to go above €100 per tonne in 2026, sources said
“[A European steelmaker from Central Europe] is now operating two blast furnaces out of three and they do not have more free CO2 allowances to make the third blast furnace operational. If they do so they will have to pay additional €160 per tonne,” a European flat steel buyer provided as an example.
Positive policy steps towards affordable energy in Europe, but data centre competition ahead
Lowering energy costs in Europe and supporting the region’s green energy transition will remain key objectives for the steel industry in 2026, with the European Commission expected to publish its official EU Electrification Action Plan (EAP) in the first quarter of 2026.
In a position paper released on December 8, the European Steel Association (Eurofer) called the EAP an important opportunity to restore affordable electricity, support decarbonization and strengthen international competitiveness. With European industrial sectors including steel facing much higher electricity costs and energy spending than international competitors, Eurofer welcomed the call to action and urged policies to improve access to long-term clean power contracts, maintain short-term support measures and boost flexibility and coordination across the grid.
According to Eurofer, the EU steel industry consumes around 75 terawatt hours (TWh) of electricity annually and its planned low-carbon projects will require roughly 165 TWh of fossil-free electricity and about 2.1 million tonnes of green hydrogen per year by 2030 to decarbonize production. Despite this, steel output has fallen significantly in recent years, with production dropping by around 34 million tonnes between 2018 and 2023 amid weak demand, global overcapacity and persistently high energy costs that have undermined competitiveness.
Europe has also introduced the European Grids Package, unveiled on 10 December 2025, to modernize and expand electricity grid infrastructure and better integrate renewable energy to support electrification and lower costs.
However, the European Commission also reported recently in November that data centers are an “energy-hungry challenge” — using an estimated 70 TWh in 2024 — which could add competition for limited clean power resources alongside energy-intensive sectors such as steel. The rapid expansion of data center construction in Europe however, will also support steel demand.
While Eurofer welcomed the energy policy developments, some industry participants have cautioned that improvements may take time to meaningfully ease the cost pressures facing European steel producers, with energy cost challenges described as long-standing and not quickly resolved.
Real demand challenges: no booming recovery expected in 2026
The outlook for European steel demand remains mixed despite some positive projections for apparent steel consumption in 2026, with the market bracing for major industry changes in the new year, including the arrival of highly anticipated trade regulations – CBAM and new trade regime, set to replace current safeguards system next year.
In early December, the European steel industry association Eurofer said in its fourth quarter market outlook that apparent steel consumption is projected to grow only modestly by 3% in 2026, leaving it well below the pre-pandemic levels Eurofer also confirmed its earlier projection for 2025 of a 0.2% drop in apparent steel consumption to 128 million tonnes.
However, despite expectations of modest growth in steel consumption, market participants remained uncertain about how real demand will develop in the new year, sources told Fastmarkets.
“There are no strong signals that would tell us there will be booming demand for steel in 2026. At least in the first half of the year,” a buyer in Germany said.
Sources pointed out that recent price increases achieved or announced in the European flat steel market are driven entirely by shifting trade regulations – notably CBAM and new trade regime, while real demand remained sluggish.
“[Flat steel] prices are moving slowly upward – however only due to fear of uncertain costs of CBAM and new safeguards and are not driven by demand,” a buyer source in Germany said.
An Italy-based buyer said, “there are very few companies who can manage CBAM financially – therefore, import activities almost stalled recently. Reliance on domestic steel next year will be much bigger, imports is becoming unmanageable. I see a wait-and-see approach from both sides of the market – stocks are higher than usual, but there is also low demand.”
The buyer added that there are no projections for long-term business.
In October, shifting regulatory frameworks, notably CBAM and the introduction of new steel safeguards, have given European flat steel prices a boost, despite limited real demand.
On December 17, the European Commission has published a package of CBAM documents on the web portal of its Directorate-General for Taxation and Customs Union (DG TAXUD), Fastmarkets reported.
Lower benchmarks and higher default emissions values for a number of origins were expected to push import prices sharply up, with some buyers already prioritizing booking flats domestic, claiming CBAM compliance costs are “unbearable.”
“Mills are trying to push for higher prices, but the market has to accept the prices”, a seller source in Northern Europe told Fastmarkets, adding that the import market remains subdued with the approach of CBAM.
However, according to a number of industry sources, the market is slowly warming up to the new levels, with a growing number of customers “accepting higher prices” as they prepare for the potential shift in market flows expected from 2026.
Fastmarkets’ daily steel hot-rolled coil index domestic, exw Northern Europe was €627.50 on January 2, unchanged since December 24 due to winter holidays trading lull.
The index was unchanged week on week, but was up by €9.17 per tonne month on month.
Decarbonization pains: steelmakers revise DRI plans
Regulatory uncertainty and deteriorating economic conditions have led several European steelmakers to revise their decarbonization strategies, with some companies cancelling on plans to build DRI towers.
Over the past few years, major European steelmakers have announced ambitious decarbonization strategies and developed their own green steel brands.
Most steelmakers use the same approach, aiming to replace Blast Furnace-Basic Oxygen Furnace (BF-BOF) capacity with electric-arc furnaces (EAF) and hydrogen-fuelled direct reduced iron (DRI) modules.
Green hydrogen – hydrogen that is produced using renewable energy – is a vital element required if the DRI-EAF route is to become a net-zero emitter.
But producing green hydrogen requires significant investment and massive increases in renewable energy generation.
Electricity in Europe is still far more expensive than in many other parts of the world. Industrial users often pay over €100 per megawatt hour (MWh), compared with just €30-€50 per MWh in countries like the US and China. This wide gap puts energy-intensive sectors, such as steel production, at a serious competitive disadvantage.
Sources in the European steel market familiar with the matter agreed that using hydrogen to feed DRI plants is currently too expensive to be competitive. Hydrogen prices in Europe are currently reported by industry sources at around €5-8 per kg.
Estimated hydrogen requirements to fuel a single 2 million tonne per year DRI module are around 140,000-150,000 tpy, which, with current hydrogen prices, will make iron production costs “astronomical,” a mill source in Europe said.
These headwinds have made European steelmakers rethink their decarbonization strategies over the past two years.
Leading European steelmaker ArcelorMittal recently scrapped plans to build DRI modules in Germany, despite also being provided with government funding. It is now only committed to build EAFs, it said, due to market fundamentals in Europe being unfavorable to green investments.
In March, Germany’s largest steelmaker, thyssenkrupp, put a tender for a hydrogen-based green steel plant on hold due to elevated prices.
In September 2025, Sazgitter announced a delaying of its final investment decision on the later stages of the SALCOS project.
In March, the European Commission presented its Steel and Metals Action Plan to support the struggling industry, but it remains to be seen how the plan will be implemented and what results it will bring.
So far, the European Commission has concentrated on tightening trade policy to shield the domestic market from unfairly priced imports as well as CBAM rollout.
The steel industry remains a cornerstone of Europe’s industrial economy. According to Commission data, the sector spans around 500 production sites across 22 member states, contributes roughly €80 billion to EU GDP, and supports more than 2.5 million jobs across the value chain.
Vlada Novokreshchenova in Dnipro contributed to this report
