MEPS: Economic slowdown dims Central Europe’s transition to green steel

The adoption of green steel in Central Europe faces significant hurdles, according to a recent report by MEPS International, as market participants express skepticism about its feasibility amid a weakened trading environment and uncertain economic conditions.

Green Steel Potential and Challenges

Data from the Global Energy Monitor’s Global Steel Plant Tracker highlights that nearly 12 million tonnes of new production capacity—produced via electric arc furnaces (EAF)—is expected to come online in Central Europe within the next five years. However, MEPS notes a limited appetite among regional buyers to pay premium prices for lower-emission steel products. Demand for environmentally friendly steel remains considerably weaker in Central Europe compared to Nordic and Western Europe.

MEPS research attributes this hesitation to reduced demand across most sectors in 2024, barring the defense and energy industries, which have maintained relatively stable steel consumption. Broader market recovery appears unlikely in the short term, particularly given ongoing geopolitical instability stemming from Russia’s invasion of Ukraine.

Economic Constraints

Economic conditions further compound the issue. Interest rates in several Central European countries remain high as central banks strive to curb inflation. For instance, the National Bank of Poland has kept its benchmark rate steady at 5.75% for over a year. This monetary policy limits borrowing, leaving steel-consuming industries with reduced financial liquidity and little incentive to invest in green alternatives.

Some companies report that financial constraints are leading them to minimize inventory values to preserve liquidity. As MEPS research points out, this "fight for survival" mentality reduces the appeal of higher-cost green steel products.

The Road Ahead for Green Steel

Despite current reluctance, some Central European companies are preparing for the long-term shift toward decarbonized steelmaking. Upcoming European Union regulations are expected to catalyze this transition. From January 2026, steelmakers will face reduced free carbon allowances under the Emissions Trading Scheme (ETS), forcing them to shoulder a greater share of CO2 costs. Simultaneously, the Carbon Border Adjustment Mechanism (CBAM) will impose tariffs on imported goods based on embedded emissions, creating further incentives for greener production.

In addition, future European legislation mandating low-emission steel for public infrastructure projects and key sectors could significantly boost demand. MEPS concludes that while the transition may be slower in Central Europe compared to northern and western regions, it remains inevitable as environmental regulations tighten and the economic benefits of decarbonization grow.

About the Source

This analysis is based on research conducted by MEPS International for its monthly publication, the International Steel Review, which provides steel prices, indices, market commentaries, and forecasts. For subscription details, MEPS can be contacted directly.

Source: MEPS, Photo: Fotolia