Europe’s steel industry faces its 2026 reckoning with CBAM in Commodity News 08/01/2026 Metals Market Movers 2026: Metals markets are increasingly being shaped by policy as much as by fundamentals. This is the third of our six-part series that explores how climate regulation, industrial policy, trade policy and strategic investments are influencing supply, demand and price across steel, iron ore and critical minerals. For Europe’s steelmakers, 2026 is the year when climate policy starts reshaping balance sheets. From January, the EU’s Carbon Border Adjustment Mechanism transitions to enforcement, making carbon intensity a direct factor in trade competitiveness and steel pricing. The mechanism is intended to prevent carbon leakage by imposing a carbon levy on the imported steel equivalent to the costs borne by EU producers under the EU Emissions Trading System. In theory, it levels the playing field with lower-cost suppliers in China, India and Turkey. In practice, it arrives at a time when Europe’s steel industry is financially stretched and in the midst of transition, according to several European sources. CBAM offers long-term protection from high-emission imports, but it coincides with the most capital-intensive overhaul the sector has faced in decades. Steelmakers are being asked to replace blast furnaces with electric arc furnaces and hydrogen-based direct reduction plants, which are central to Europe’s decarbonization strategy. But cost and commerciality factors have led to most low-carbon projects being put on hold. CBAM also coincides with the gradual withdrawal of free ETS allowances. From 2026, free allocations will be reduced by 2.5%, with the reduction rising to 5% in 2027 and accelerating thereafter, reaching nearly 50% by 2030 before the allowances disappear entirely in 2034, according to the EU CBAM legislation. Executives warn that while the early cuts are modest, the combined impact of rising ETS costs and heavy capital spending risks constraining cash flow just as global competitors scale up their own low-carbon capacity. CBAM is also being reinforced by a tightening of EU import safeguards as earlier WTO-compliant measures expire. Proposed replacements would significantly reduce tariff-free quotas and double out-of-quota penalties to 50%. European market participants say the combination of CBAM costs and stricter safeguards removes the safety valve of cheap third-country supply that previously capped European prices. Regulation may set the price floor Heading into 2026, regulation is overtaking demand as the main driver of European steel prices. European flat steel mills are pushing offers higher despite subdued end-use consumption and thin spot liquidity. Automotive output has stabilized but has shown little growth, while construction remains weighed down by high borrowing costs and weak permitting. Under normal market conditions, such demand would limit price increases. CBAM changes the equation. From January, benchmark emissions values and default carbon factors become a tangible cost, often eroding the apparent competitiveness of imported material, several buyers said. Buyers added that attractive CIF offers frequently lose their appeal once carbon costs, administrative risk and financing are included. Some importers said they are shifting toward delivered-duty-paid terms, transferring the CBAM risk to sellers. But the added cost is typically reflected in higher prices, narrowing or eliminating any discount to dom