WSD’s Regional Outlook & Development Europe: Part 2
Europe – “Fortress EU” takes shape: trade defense as the silver lining for steelmakers
As outlined in Part 1 of this series, the European steel sector is contending with structurally declining demand, eroding manufacturing competitiveness, and limited prospects for a meaningful rebound. Against this backdrop, EU policymakers have pivoted toward a two-pronged response: softening “green” regulatory mandates while simultaneously strengthening trade protections. Most notably, recent measures include loosening sustainability disclosure requirements so that up to ~80% of companies might be exempt from current EU sustainability reporting rules:
• The Euro commission’s so-called ‘omnibus simplification package’ was announced earlier in 2025 as a planned series of red tape-cutting measures to boost business competitiveness and catch up with the US. It includes amendments to four major components of the Green Deal: The Corporate Sustainability Reporting Directive (CSRD), the Corporate Sustainability Due Diligence Directive (CSDDD), the EU taxonomy for sustainable investments, and the Carbon Border Adjustment Mechanism (CBAM).
From the steel industry perspective, the key factors impacting the region’s demand outlook are likely to revolve around additional infrastructure spending programs – such as the ones recently announced in Germany and additional initiatives elsewhere. A surge in defense spending is viewed as a means to partly offset some of the structural decline in legacy sectors such as automotive and machinery; however, WSD doubts the speed and steel intensity of these initiatives will be substantial.
• As such, our demand outlook remains biased to the downside with apparent consumption declining further to about 128 million tonnes by the middle of the 2030s.
The “good news,” if any, lies in the significant potential of additional “protectionist” trade measures, with the initial wave already underway in the form of Carbon Border Adjustment Mechanism (CBAM) implementation effective beginning of calendar 2026. While this mechanism technically aims to incentivize investment in lower CO2 emissions among both regional producers and those elsewhere, its impact is likely to be one of reducing imports while increasing regional prices in the short and medium term. The key factor that could alter the supply structure, pricing and profitability outlook for the EU steel sector would be the proposed overhaul of the current safeguard regime (set to expire on June 30, 2026) with a new, stricter trade defense framework. Some of the key features reported in the proposals include:
• Sharply Lower Tariff-Free Import Quotas, potentially reducing the amount of steel that can enter the bloc without tariffs to about 18.3 million tonnes per year, or about 47% lower than recent quota levels. Imports beyond this quota would not benefit from tariff free treatment.
o Instead of annual quotas that roll over, the new system is expected to manage quotas on a quarterly basis, with unused volumes typically not carried over to the next period (although some draft texts allow limited flexibility).
• These are expected to be combined with higher tariffs on any imports above the quota, facing a 50 % ad valorem duty — double the current out-of-quota duty (which has been around 25%).
• More stringent origin rules – whereby importers would need to comply with “melt and pour” traceability requirements by providing documentation showing the country where steel was both melted and initially cast, to prevent circumvention via third countries.
This new regime is rumored to take effect on July 1st, 2026 after the expiry of the existing safeguards, although it still requires approval through the EU’s ordinary legislative process (European Parliament and Council). Granted this unfolds as “advertised,” WSD forecasts the following:
• EU net imports will decline from an average figure of about 19 million tonnes over the past five years (on a crude steel equivalent basis) to an average of about 7 million tonnes in the decade from 2026-2035.
• Crude steel production is forecast to rise by about 5 million tonnes in 2035 compared to 2025 estimated levels.
o Production via the EAF route is expected to increase from 59 million tonnes in 2025 to 86 million tonnes in 2035.
o DRI consumption is forecast to increase by about 20 million tonnes with production rising by 19 million tonnes.
The shift in trade policy and corresponding re-shuffling of supply in favor of regional producers could act as a transformative event for the region’s steel sector despite weak demand prospects, potentially positioning it in a similar manner to the USA industry with respect to structurally higher prices and profits relative to the rest of the world.