Chinese steel will lose its price advantage in Europe with the introduction of CBAM – forecast

Chinese steel will lose its price advantage in Europe with the introduction of the cross-border carbon adjustment mechanism. These forecasts are provided by Jingzhe Liu, project development manager at Jingzhe Environment & Climate, representing the CBAM researchers group.

Many market participants assume that a 2.5% reduction in the benchmark for free emissions in the first year of CBAM will result in insignificant losses. However, the addendum to the implementation regulation, which has been leaked to the public, with benchmarks proves that the main costs will be related to other reasons.

According to Jingzhe’s estimates, direct emissions from Chinese factories per ton of steel are 2.1 tons of CO2 equivalent, while the benchmark for free hot-rolled coil (HRC) is 1.494 tons of CO2. The CBA payment will be calculated based on the difference between actual emissions and free allowances. Moreover, the volume of free allowances in the first year of the CBA will be further reduced by 2.5%.
Under these conditions, the price of Chinese HRC will increase by approximately €65/t. This will significantly worsen the competitiveness of Chinese producers from the very beginning of the mechanism’s operation, despite the fact that, according to researchers’ estimates, the current net spread for Chinese HRC in Europe compared to local prices is €100/t.

Actual emissions for Indian steel products reach 2.3 tons of CO2 equivalent per ton of steel, so India will need to increase export prices by approximately €85/t in 2026 due to CBAM. Turkish producers operating electric arc furnaces will only have to raise prices by €12/t. Therefore, after taking into account the carbon tax, Turkish imports will actually become more profitable than Chinese imports, even considering higher production costs due to more expensive energy.

In 2027, with carbon prices rising (to approximately €120/t CO2) and further reductions in free allowances in the EU ETS, the costs associated with CBAM payments on imports from China will exceed €80/t of steel. The country will lose its advantage in the European market in the form of the lowest cost of steel products.

The window of opportunity for the price advantage of Chinese steel remains only for 2026 and 2027, the researchers conclude. The belief that full CBAM payments will only begin in 2034 (after the abolition of free allowances) is mistaken.

It should be recalled that on the eve of the COP30 climate summit, the European Union and China agreed to join Brazil in a coalition aimed at improving cooperation in carbon markets. The initiative aims to bring countries together to harmonize relevant practices and standards.