India’s steel exporters face mounting headwinds as the European Union tightens trade rules and readies its Carbon Border Adjustment Mechanism (CBAM), a move that could erode India’s competitiveness in one of its most critical markets, credit rating agency Icra said in a new report.
According to Icra, the European Commission’s October 2025 proposal to cap tariff-free steel imports at 18.3 million tonne annually, a 47 per cent reduction from 2024 levels, while doubling out-of-quota tariffs to 50 per cent, marks a sharp shift towards protectionism in Europe’s steel policy. The new regime, likely to replace existing safeguards by June 2026, aims to bolster domestic producers’ profitability and support their decarbonisation goals.
“The proposed restrictions, coupled with CBAM implementation from January 2026, pose a dual challenge for Indian steel exporters, constraining both volume growth and export profitability in the near term,” the agency said.
Despite existing safeguards, EU steel imports have remained elevated at 25–30 million tonne annually, roughly 18–20 per cent of total demand, over the past decade. With capacity utilisation hovering around 60–65 per cent, Brussels is seeking to reduce import dependency and help European mills invest in cleaner technologies.
Nearly 75 per cent of the EU’s steel imports originate from Turkey, South Korea, India, Vietnam, Taiwan, China, Ukraine and Japan—countries that could all face shipment curbs under the new proposal, which currently offers no exemptions. Icra’s analysis found that 32–45 per cent of India’s steel exports, equivalent to 2–4 million tonne annually, are bound for the EU, making Europe a vital high-value market for Indian producers.
Export And Price Pressures
India’s steel exports fell 35.1 per cent year-on-year in FY2025, reflecting weak global demand and intense competition from Chinese mills. The proposed EU quotas could further depress Indian exports, especially given that shipments to Europe largely comprise value-added products such as cold-rolled coils, galvanised sheets, and stainless steel.
“With European steel prices typically trading at a premium to Asian markets, any disruption in exports to the EU could weigh on the profitability of domestic primary steel producers,” Icra noted. Top destinations within Europe include Belgium, Italy and Spain.
Icra warned that a diversion of around 12 million tonne of Asian steel—currently destined for the EU—could flood other growth markets such as India, heightening import competition. As Asian suppliers already account for 70–75 per cent of India’s steel imports, an inflow of low-priced material could suppress domestic steel prices and compress margins through FY2027.
The EU’s CBAM, designed to prevent “carbon leakage” from imports, will require EU importers to buy certificates for emissions embedded in foreign steel that exceed EU Emission Trading System (EU-ETS) benchmarks.
Icra estimates that India’s top five primary steelmakers have an average emission intensity of 2.6 metric tonne of CO₂ per tonne of crude steel, around 12 per cent higher than the global average for blast furnace–basic oxygen furnace (BF–BOF) routes.
“Unless Indian mills can materially cut their carbon footprint during the transition, they risk losing market share in Europe,” Icra said.
The agency projects CBAM-related costs could erode Indian steel exporters’ profits by USD 60–160 per tonne between 2026 and 2034, depending on carbon price trajectories and the pace of free allowance withdrawal under the EU-ETS.
Limited Cushion For Indian Producers
Although exports contribute only 6–8 per cent of total revenues for India’s major steel companies, such as Tata Steel, JSW Steel and SAIL, these shipments are primarily high-value and thus crucial to margins.
Large integrated producers with strong domestic demand and healthier balance sheets remain better placed to weather near-term pressures. However, smaller mills with greater export dependency or higher emission intensity could see sharper profitability declines.
Icra observed that in the domestic market, hot-rolled coil prices trade at a discount of Rs 1,300–3,800 per tonne to imported offers from Japan and South Korea, suggesting limited room for price recovery amid potential import surges.
The credit ratio for Icra-rated ferrous metal companies fell to 0.5 times in Q1 FY2026, as many issuers missed revenue projections amid weaker demand and pricing. The industry’s overall rating distribution continues to cluster around the A and BBB categories, indicating moderate credit strength but rising stress.
“Safeguard measures and CBAM together could dampen export competitiveness and margins, keeping the industry’s credit metrics under pressure through FY2027,” Icra cautioned.
While the EU’s tighter regime aims to revive its steel industry and accelerate decarbonisation, it adds another layer of complexity for exporters in emerging economies. For India, which is simultaneously expanding production and pledging net-zero alignment by 2070, the challenge lies in balancing carbon transition costs with export viability.
“Unless a trade arrangement is reached with the EU, Indian steelmakers may face both volume contraction and profit erosion in the medium term,” Icra concluded. |
