Climate targets versus market realities: Europe’s steel policy under pressure

The OECD is warning of overcapacity, trade circumvention and massive price pressure – yet policymakers are focusing on lead markets and climate targets. Is that enough to keep the European steel industry competitive?

The signals from Paris are clear: the global steel industry is under massive pressure. At the latest meeting of the OECD Steel Committee, it became clear that overcapacity is continuing to rise, trade circumvention is increasing and state subsidies are increasingly distorting competition. The momentum from China, in particular, is exacerbating the situation – with growing export pressure and falling margins in international markets.

At the same time, European industrial policy is formulating its response: climate neutrality, lead markets and regulatory frameworks are intended to ensure the sector’s transformation. The German Steel Association expressly welcomes the Climate Action Programme 2026 and rightly calls for reliable demand for low-carbon products – coupled with a clear ‘Made in the EU’ approach.

However, this is precisely where a tension arises that cannot be ignored.

For whilst the OECD describes a structural supply problem – driven by overcapacity, dumping and increasingly sophisticated circumvention strategies in global trade – Europe is relying primarily on demand-side instruments. Lead markets, public procurement and regulatory incentives are intended to ensure the ramp-up of climate-friendly production. This is understandable from an industrial policy perspective, but falls short if market forces are simultaneously pulling in a different direction.

The key question is: what is the point of climate-friendly steel if the market continues to come under pressure from cheaper imports?

Added to this is the fact that instruments such as the Carbon Border Adjustment Mechanism (CBAM) have one primary effect in the short term: rising costs across the entire value chain. Whilst European producers must invest to become climate-neutral, competitors outside Europe often operate under significantly less restrictive conditions – and find ways to circumvent existing trade measures.

The ‘Made in EU’ approach called for by the German Steel Association is therefore logical – but by no means a sure-fire success. Its practical implementation raises complex questions: How robust are such criteria under international trade law? How can loopholes in steel-intensive imported products be closed? And how can we prevent value creation from continuing to migrate away from Europe whilst higher standards are in place?

For many market participants – particularly in the steel trade and downstream processing sectors – a very pressing question also arises: who will bear the costs of this transformation? Leading markets can provide impetus, but they are far from reaching all segments equally. Structures dominated by small and medium-sized enterprises, in particular, quickly find themselves caught between rising purchase prices and price-sensitive sales markets.

The real risk lies in the lack of balance: Europe is attempting to solve a global problem of oversupply through regional demand-side policies. Without effective limits on overcapacity, consistent enforcement of trade rules and the realistic integration of international competitors, this strategy risks reaching its limits.

Climate protection and competitiveness are not mutually exclusive – they are interdependent. However, current trends show that the two can only work together if industrial policy instruments are not considered in isolation. The challenge lies in reconciling market mechanisms with transformation goals.

The OECD has clearly highlighted the need for action. The question now is whether the policy responses will follow quickly enough – and whether they truly reflect the reality of global steel markets.

Photo: marketSTEEL and fotolia