Published by Global Banking & Finance Review®
Posted on December 8, 2025
3 min readLast updated: January 20, 2026
Add as preferred source on GoogleIndia's steel exports to Europe may drop as the EU's carbon tax takes effect, pushing mills to seek new markets in Africa and the Middle East.
By Neha Arora and Manvi Pant
NEW DELHI, Dec 5 (Reuters) - India's steel exports to Europe are expected to fall once the European Union's carbon tax takes effect next month, prompting mills to seek alternative buyers in Africa and the Middle East, industry executives and analysts said.
Imports of steel into the European Economic Area will face a carbon tax under the EU's Carbon Border Adjustment Mechanism (CBAM) starting on January 1. The decarbonisation-oriented levy will also apply to cement, electricity, fertilisers and other products.
Mills in India, the world's second-largest crude steel producer after China, ship roughly two-thirds of their exports to Europe.
Experts say Indian mills will need to cut their carbon emissions.
"We recognise that we have to do environment-friendly production and companies are gearing up to comply, but they are also looking at alternative markets too," Aruna Sharma, India's former steel secretary, told Reuters.
Most of India's steel is produced in blast furnaces, which generate higher emissions, said Sandeep Poundrik, the top civil servant at the Ministry of Steel, in September. He also said further expansion of blast furnace capacity is a concern.
Additional planned capacity could add about 680 million metric tons of carbon-dioxide-equivalent emissions from the sector, according to Global Energy Monitor, a U.S.-based research group.
Indian steelmakers have planned new investments to lift output as strong domestic demand - fuelled by government-backed infrastructure spending - continues to rise.
"Most of the companies are yet figuring out a way to deal with CBAM," said Ravi Sodah, a cement, metals and mining analyst at Elara Capital. "In the near term, it is expected to slow down India's exports to EU."
One way to mitigate the problem is to use electric arc furnaces, which emit far less carbon than conventional blast furnaces.
Two executives at large Indian steelmakers, who asked not to be named because they are not authorised to speak to the media, said companies had little clarity on how the tax would be calculated.
"About 60% of our exports go to Europe and we want to know what is the rate that will be levied and will it be company specific?" said one of the executives.
The levy will raise the cost of Indian steel exports to the EU, especially blast furnace products, squeezing margins and EU market share unless producers cut emissions, said Lakshmanan R, head of South & Southeast Asia corporates at CreditSights in Singapore.
To offset lower exports to the EU, Indian steel mills are trying to tap into the Middle East and offering quick delivery and flexible payment terms, said Shankhadeep Mukherjee, principal analyst at London-based CRU Group.
(Reporting by Neha Arora and Manvi Pant; editing by Mayank Bhardwaj and Thomas Derpinghaus)
The EU carbon tax is a levy imposed on imports of certain goods, including steel, to encourage lower carbon emissions and promote environmentally friendly production practices.
The CBAM is a European Union policy designed to impose a carbon tax on imported goods, aiming to level the playing field for EU producers who comply with strict environmental standards.
Electric arc furnaces are a type of furnace that uses electricity to melt steel scrap and produce new steel, emitting significantly less carbon compared to traditional blast furnaces.
Decarbonization refers to the process of reducing carbon dioxide emissions associated with energy production and consumption, often through the adoption of cleaner technologies and practices.
A blast furnace is a large industrial structure used to produce iron and steel by smelting iron ore with coke and limestone, known for generating high levels of carbon emissions.
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