“Disruptive” is a buzzword that usually carries a positive connotation when used in the technology industry. If you hear “disruptive” in the context of the European steel industry, though, it will automatically elicit the opposite association: It refers to the dangerous cocktail of uncompetitive energy prices, stagnating economic growth, and heavy competition from Asia that resulted in a historic low in the EU’s crude steel production in 2023.
Key challenges include reduced demand from sectors like automotive, a widening energy cost gap with other regions, and low-cost competition. Despite these difficulties, EU crude steel production is expected to grow by approximately 2% annually through 2030, supported by demand from strongly rising defense production, infrastructure spending, and wind, along with regulatory protection.
In this article, we will take a closer look at the opportunities and risks being faced by the industry, and provide an overview of specific measures steel producers can take to counteract the downturn in the short term.
Volume and profitability development of European steel industry
The financial health of European steel producers has been volatile, with global earnings before interest and taxes (EBIT) margins dropping from around 9% in 2018 to about 5% in 2024. Looking at regions, Germany has the lowest profitability in Europe, caused by high grid fees, high labor cost and a multitude of competing steel producers.
Despite initially strong revenue growth during the post-COVID-19 recovery, revenues have declined since early 2023 due to stagnating economy and energy prices dropping from a record high in 2022. Steel producers' equity ratios in Europe are stable at around 50%, but the average leverage ratio (net debt/EBITDA) grew to 2.9x in 2024. Following Moody's Steel Methodology, this is very close to a non-investment-grade rating of 3.0x and above.
Four key opportunities for the European steel industry
A growing defense industry: EU governments' rising defense spending and initiatives like "Sky Shield" drive additional demand for steel. Due to low price sensitivity of defense customers and defense steel requiring more processing steps, higher margins are realized.
Significant investments in infrastructure: The German parliament agreed to allocate €500 billion over the coming years for infrastructure projects such as the construction of roads and bridges, which will require substantial amounts of steel.
Renewable energy expansion: Construction of on- and offshore wind plants and repowering of the first generation of wind plants spur higher demand for steel bearings in wind turbines and heavy plates for offshore wind foundations. In addition, the construction of a hydrogen pipeline in Germany will create demand for steel pipes.
Green policies reshape production: Many European steel producers have already started the construction of green production routes. Given the ambitious Scope 3 targets of large steel consumers, European steel producers are more attractive than Asian producers. Furthermore, the EU’s Carbon Border Adjustment Mechanism (CBAM) will make grey steel from outside of the EU more expensive as of 2026.
Risk factors challenging the steel industry in Europe
Significantly higher energy and labor costs in Europe compared with Asia and the US are detrimental to competitiveness. As an example, India’s wage cost for plant and machine operators is about 5% of Germany’s. In Germany, increasing grid fees are a major driver of energy costs and are among the highest in Europe.
Slow economic growth: Automotive producers and mechanical engineering companies experience slow growth and regulatory uncertainty. Both types of companies belong to the industries with the highest steel consumption in Europe.
US tariffs weaken European steel: US tariffs reduce demand for European steel in two ways. On the one hand, tariffs on steel will raise European steel prices and make it less competitive in the US. On the other hand, tariffs on automotive producers lead to fewer steel orders from one of the industry’s largest consumers.
Significant global overcapacities: A drop in steel demand with delayed adjustments of global production capacities drives increasing imports of competitive steel from Asia and puts pressure on prices.
Navigating downturns in the steel industry
During a downturn, steel companies typically transition through five stages: declining sales, diminishing profitability, liquidity crunch, concerns of financiers, and return to success (Exhibit 3). As companies navigate through these stages, management should focus on the following key levers (sorted by stage):
European steel strategies for the road ahead
In summary, the European steel industry faces a challenging landscape marked by high energy costs, intense global competition, and slow economic growth, yet it also stands at the cusp of promising growth driven by defense spending, infrastructure investments, renewable energy projects, and a shift toward green steel production. While profitability remains under pressure, and risks such as tariffs and overcapacity persist, steel producers can navigate the downturn by strategically realigning their customer base, optimizing operational efficiency, and employing financial levers to preserve liquidity and investor confidence. By embracing these targeted measures and capitalizing on emerging opportunities, the European steel industry can position itself for sustainable growth through 2030, and beyond.