Opis McCloskey: EU downstream steel sector warns of existential threats

EU steel distribution and end user associations have warned of the significant, and potentially existential threat that the European Commission’s recent proposal to rework the EU’s steel protection framework presents to downstream manufacturing, calling on authorities to urgently address loopholes across its steel regulatory framework write Benjamin Steven and Maria Tanatar for McCloskey.

European distributors’ association Eurometal has the most extensive analysis of injuries already identified within the EU steel value chain, that threaten to compound if not addressed urgently, as published on their website 7 October.

Their analysis demonstrates that existing regulatory loopholes are sustained within the newly proposed framework, and have already permitted a significant increase in imports of steel-containing finished goods – steel derivatives – of 213% between 2010 and 2024, facilitating an environment in which the EU’s downstream manufacturing industries cannot compete, in relation to both trade and climate regulations.

According to Eurometal – and confirmed by recent statements from national political leaders like Poland’s Tusk, Germany’s Merz, and France’s Macron – these pressures threaten to cause “structural and irreversible” damage to the downstream industry if not alleviated quickly. The association describes component manufacturers as increasingly price-sensitive above all other factors; service centers and distributors as “pushed out of the supply chain” by compliance costs; downstream industrial ecosystems “undermined at their base;” and the weakening of the EU’s upstream steel production, “putting the entire steel value chain at risk.”

This “endangers the economic fabric of Europe itself,” EUROMETAL says, putting “over 3 million direct industrial jobs” at risk of extinction. “This trend must be recognized for what it is: a stealth mechanism of deindustrialization, undermining Europe’s ability to retain value creation, climate responsibility, and strategic autonomy.”

Italian distribution association Assofermet, European stainless steel trading association EURANIMI, European Automotive association ACEA, and a core EU Original Equipment Manufacturer (OEM) have also provided comments surrounding either the newly proposed framework, or existing regulatory loopholes in instruments like the Carbon Border Adjustment Mechanism (CBAM), calling for further action and clarification from the Commission.

The Commission has already committed in March’s Steel and Metals Action Plan (SMAP) to a legislative proposal to extend CBAM to steel derivative products before year’s end, in order to prevent carbon leakage being pushed downstream.

The new proposal for reworked steel defenses similarly promises to consider legislation within two years – “if necessary” – to extend its protections to “additional steel products, including products that are made of or contain a significant amount of steel.” The associations would likely see this two year review period as much too late.

Regulatory loopholes 

The Commission’s new framework proposes new and intensified shields against imports of primary steel products – but European industrial competitiveness cannot be premised solely upon the survival of its steelmakers, as the extensive remit of steel as an input material gives it fundamental influence on the competitiveness of the EU’s downstream and derivative manufacturing sectors.

Existing steel trade measures like anti-dumping duties also primarily target commodity steel products, leaving the downstream segment comparatively unprotected.

Importers, and downstream industries dependent on the import of certain steel products, are also limited in preemptive stockpiling opportunities due to the incoming definitive stage of the Carbon Border Adjustment Mechanism (CBAM) from January, and a sustained lack of clarity as to benchmark and default values integral to specific financial exposures to the mechanism. Lead times inherent to the import of international steel mean importers are effectively in the dark as to their actual financial obligations to the mechanism on present import orders due to arrive in 2026, and many prefer to share current out-of-quota duties of 25% pro-rata instead – as demonstrated by the quick exhaustion of Q4 safeguard quotas across various steel product categories.

Assofermet highlights that in this context, steel derivatives remain uncovered by CBAM, and so high-polluting nations could re-orientate their exports to the EU  toward manufactured products, undermining the purpose of CBAM. In a note published 6 October, Assofermet requested that Italian ministries introduce exemptions for CBAM payments on steel imports both until reference benchmark and default values are published, and for 5 months thereafter.

“This information gap creates profound uncertainty about the real cost of CBAM , forcing importers to place orders “blindly” to avoid stock depletion and ensure continuity of supply to their customers,” said Assofermet. “[It] entails serious risks […] for the entire EU manufacturing sector, which is exposed to unpredictable price increases and a climate of commercial uncertainty.”

The US effect

Compounding matters, Eurometal highlights in its analysis that recent actions by the US to extend its own steel defenses to steel derivative products under the scope of section 232 could see said products bounced to the European market absent a downstream extension of the EU’s protection framework.

According to Eurometal, “initial data suggests that up to 15% of global steel derivative flows — previously targeting the US — are now being rerouted to the European Union, where such products are not yet subject to equivalent origin tracking or carbon pricing rules.” This risks the EU becoming “a dumping ground [..] and a bypass channel for global circumvention strategies,” vulnerable to “regulatory arbitrage.”

Consequent impacts threaten to undermine much of the European Commission’s industrial policy efforts, not only sustaining the possibility for highcarbon imports to enter the EU unprotected and incentivizing carbon leakage against CBAM’s intended purpose, but also undermining European efforts to reinforce industrial circularity if “processing and fabrication are outsourced.

In many ways, the Commission’s proposals for its new steel trade protections parallel the US framework – though will be pursued with alignment to WTO rules under article XXVIII of the General Agreement on Tariffs and Trade (GATT) – in all but duty-free quota access and steel derivatives coverage, potentially deflecting downstream, rather than dissipating pressures on Europe’s steel industry.

Inflationary pressures

CBAM is, therefore, already presenting risks across the value chain, and the Commission’s new proposals could compound inflationary pressures.

Comparative analysis of the quota reductions at the product category level between the protections, new and old, demonstrate significant cuts variable by product category, and in fact actual volumes could see even greater reductions to import accessibility due to volumes historically imported out-of-quota at a 25% duty rate, but less likely to continue under the new 50% rate.

Looking at specific steel product categories, stainless steel imports are subject to an annual quota reduction averaging around 54%, according to McCloskey’s calculations. Christophe Lagrange, executive board member at stainless steel trading association EURANIMI spoke to McCloskey on the potential impact, describing the measures as a “radical game changer.”

“We expect this will cause a swift increase in domestic stainless steel prices, which could be a terrible blow for the downstream manufacturing industry as it will still have to compete against much cheaper imports of finished products,” said Lagrange. “While this measure is ‘positive’ in the short term for mills and distribution, we expect stainless steel consumption to decrease in the longer term as manufacturing is shifted outside of the EU against an instream of a wide range of new imports of downstream stainless products – all compounded by a global loss of competitiveness for EU manufacturers in our export markets.”

Indeed, these factors could ramp domestic steel prices beyond prior expectations, and create significant inflationary pressures within Europe’s steel-consuming industries, such as the automotive sector, which according to Eurometal’s analysis is the destination for 40% of total steel derivative imports.

“Automobile manufacturers source approximately 90% of their direct steel purchases in the EU and are most concerned about the inflationary impact that an effective continuation of the safeguard will have on European market prices,” said ACEA. “The Commission needs to look individually at sectors like automotive where, despite a heavy reliance on domestic steel supply, our manufacturers still need to import certain quantities and qualities.”

Speaking to McCloskey, a high-level representative for a core European OEM stressed the need for a big-picture perspective: “We celebrate that the Commission has finally looked into appropriate protections for their steel industry, but the measures lack necessary actions on steel-containing goods,” the source said. “The proposal will drive domestic steel prices higher on import restrictions, which could become blocked entirely with CBAM on top, but this will only make the import of steel derivatives, like components, even more attractive.

“Imported components are already cheaper than domestic equivalents,” the OEM source said. “The Commission needs to zoom-out and look at the steel industry as a whole, not just patch defenses for steelmakers. We need to send a clear signal to EU authorities that they will swiftly look into steel derivatives, because right now we have no choice but to default to [downstream] imports to stay competitive.”

A call to action

Europe’s downstream steel and steel-consuming associations are unanimous in their call for further attention to these loopholes and wider issues facilitating steel derivative imports, with Eurometal in particular giving detailed proposals that could extend shields to steel derivative imports, and thus protect European manufacturing.

Eurometal outlines a wide range of potential policy remedies: the extension of both CBAM, and new and old trade protections to downstream or derivative steel products via incorporation of new TARIC codes; the implementation of ‘melted and poured’ declarations at customs across both primary steel, and steel-containing goods; a strengthening of monitoring tools to tighten circumvention loopholes; new objective thresholds for future regulatory shields, focusing on steel products exceeding a 100kt annual import volume or evidencing a 30% increase in volume over a ten-year period; as well as general measures to incentivize domestic industrialization and reward compliance, rather than suffer its effects.

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Opis – McCloskey
English
8 October 2025