Indian steelmakers exporting to Europe are preparing for higher costs, lower margins and tougher choices as the European Union’s Carbon Border Adjustment Mechanism (CBAM) begins to bite. Industry estimates suggest that once carbon costs are fully reflected, export prices could rise by 15–22%, a shift that directly affects volumes, profitability and long-term market presence.
Europe is among India’s most important overseas steel markets. Italy, Belgium, Spain and Poland together account for roughly 40% of shipments to the region. With margins already thin for most flat steel products, even partial absorption of CBAM-linked costs could weaken export realisations and make Indian steel less competitive against lower-emission suppliers.
Payment Phase Begins
CBAM is designed to equalise carbon costs between European producers and overseas suppliers. From January 2026, importers of steel into the EU will have to pay a levy linked to the emissions generated during production, unless a comparable carbon price has already been paid in the exporting country. For buyers, this raises landed costs. For exporters, it changes pricing power.
The impact on Indian mills is sharper because of higher emissions intensity. Domestic steel production is still dominated by coal-based blast furnaces, which emit substantially more carbon per tonne than European averages. At current EU carbon prices, analysts estimate this could translate into an additional €55–80 per tonne at the border, enough to alter the viability of several export flows.
According to an assessment by S&P Global, these costs are unlikely to be fully passed on to European customers, particularly for commoditised flat steel where buyers can switch suppliers. Exporters may therefore be forced to absorb part of the levy to protect volumes, directly compressing margins.
Decarbonization Divide
The problem is structural. Limited availability of scrap and a relatively low share of electric arc furnace-based production restrict how quickly Indian mills can lower emissions without large capital investments. This makes rapid adjustment difficult, especially for smaller players.
Larger producers are beginning to position CBAM as a trigger for faster decarbonisation. At JSW Steel, management has said access to regulated markets will increasingly depend on emissions profiles. The company is stepping up investments in renewable energy, green hydrogen and electric arc furnace capacity, and is advancing plans for a green steel project at Salav aimed largely at European customers.
For Tata Steel, the European transition adds another layer of complexity. The shutdown of blast furnaces at Port Talbot in the UK and the move towards electric arc furnace-based production mean the company is temporarily reliant on imported steel to service local demand. This dependence coincides with tighter carbon-linked trade rules in Europe, magnifying the commercial impact of CBAM. Tata Steel is also developing an electric arc furnace facility in Ludhiana as part of its broader decarbonisation programme.
Analysts expect CBAM to deepen the divide within the industry. Large, integrated producers with stronger balance sheets are better placed to invest in cleaner production and retain access to Europe. Smaller exporters, by contrast, may find the economics unsustainable and be forced to scale back EU exposure or redirect shipments to markets with fewer carbon constraints.