Europe Needs a Steel Strategy, Not 27 Industrial Policies
Decarbonisation can strengthen the EU’s industrial base, but only if Brussels treats energy costs, scrap, trade defence and security as parts of the same challenge. A commentary by Carolina Bedocchi, and Davide Panzeri
The steel industry remains a cornerstone of the European economy, supporting over 2.6 million jobs and generating more than €150 billion in added value each year.
At the same time, the sector is facing growing pressure. Global overcapacity, rising imports and persistently high energy costs are eroding its competitiveness across Europe.
In this context, decarbonisation has moved beyond being solely a climate objective: it has become a strategic priority for preserving Europe’s industrial base, economic security and autonomy.
The imperative for decarbonisation must be approached in a way that strengthens each country’s industrial assets and policies.
On the one hand, by facilitating decarbonisation for those companies that still need to do so, on the other by not negatively affecting companies’ abilities to benefit from decarbonisation investments already made.
The approach to all this must be integrated across sectors, upstream and downstream, and coordinated between the national and EU levels. This requires wide strategic considerations about the sector, centered on a EU-wide vision of steelmaking.
This is crucial because the challenge the steel industry faces is a global challenge. The European dimension must therefore be one of cooperation and coordination, not of friction.
Facing this challenge as 27 distinct and competing markets, as opposed to one of the biggest economic blocs in the world, is a recipe for failure.
It would mean undermining the EU’s climate and strategic autonomy’s objectives and, ultimately, the Single Market and the wider principle of solidarity that the EU is built on.
The foundations of the EU were laid by the European Coal and Steel Community, which was born to coordinate steel and coal production. Returning to this approach means, in a sense, staying true to the origins of this common project.
Why Italy matters
Italy represents a particularly relevant case within this broader European landscape.
The Italian production is the second-largest in the EU, with around 20 million tonnes of steel produced in 2024. Of this production, only the 10.7% comes from iron ore via the blast furnace basic oxygen furnace (BF-BOF) route, from the Taranto site (former Ilva), for the production of high-quality ore-based products. The remaining 89.3% comes from the electric arc furnace (EAF) route, relying on steel scrap as feedstock and electricity as the main energy input.
As a result, the emissions associated with Italian steel production are relatively low, positioning Italy as a competitive player in a low-emission steel scenario5. However, this specialisation exposes the Italian steel industry to specific structural risks.
Firstly, the transition of Italy’s last remaining integrated steel plant from the BF-BOF route to hydrogen-based direct reduced iron (DRI)–electric arc furnace (EAF) production is constrained by high investment and operational costs, resulting in the lack of cost competitiveness under current market conditions.
Despite these challenges, preserving domestic ore-based steel production remains essential for the manufacture of specific high-quality products that support key downstream sectors6.
Secondly, the competitiveness of the Italian EAF-based production depends heavily on two key inputs: electricity and scrap.
The high electricity prices in Italy (among the highest in Europe) directly increase production costs and affect Italian industries’ competitiveness. Scrap availability and price levels can further undermine profit margins and investment certainty.
Scrap alone can account for up to 65% of total production costs in EAF-based steelmaking8, making its availability, quality, and price critical determinants of the sector’s competitiveness.
In 2023, the Italian steel industry used around 17.1 million tonnes of scrap, approximately 30% of which was imported, making Italy a net importer of scrap. This dependence exposes Italian producers to international price volatility and growing competition for scrap resources.
Italy is indeed the largest scrap-based steel producer in Europe, while across the EU, steel production still relies on around 55% on the BF-BOF route, which requires a lower share of scrap (10-15 % of input materials).
As a result, at present, Europe does not face an immediate physical shortage of scrap. However, looking ahead, the balance between scrap supply and demand is expected to shift significantly.
As the EU steel sector transitions, the role of scrap is set to expand further, also in light of the high production costs associated with the green hydrogen DRI-EAF route.
Scrap will increasingly be used not only as the main feedstock in traditional EAF production, whose capacity is expected to grow, but also more extensively in DRI-EAF configurations, thereby increasing overall scrap demand.
At the same time, scrap availability is projected to grow at a slower pace. Hence, rising domestic demand could absorb most of the available scrap in Europe by mid-century, gradually reducing the current surplus and increasing pressure on both prices and export flows.
In this context, the challenges currently faced by Italian steel producers with regard to scrap could progressively extend to other Member States and become more acute as the European steel transition accelerates.
A coordinated policy mix
The progressive shift towards increased EAF capacities and new green hydrogen-based DRI-EAF production routes must be supported by a coordinated policy mix capable of mobilising investment and ensuring the necessary enabling conditions, including competitive energy costs and sufficient scrap availability.
A genuinely integrated European perspective is needed to leverage the strengths of different production routes and national industrial contexts, while ensuring that the transition delivers collective benefits across the EU.
On the supply side, measures aimed at reducing upfront investment costs for low-emissions steelmaking routes should be complemented by targeted support for energy costs.
On the demand side, the creation of viable markets for higher-cost green steel should take into account the diversity of European steel production.
A one-size-fits-all approach would be inadvisable. Lead markets should support the transition of industrial plants from BF-BOF to cleaner production routes, without disincentivising plants that already have comparatively low emissions, such as EAF-based production.
A differentiated approach should therefore be adopted to support both DRI-EAF and scrap-based EAF routes through appropriate instruments, including incentives, regulatory frameworks and protection mechanisms.
A dedicated EU strategy for scrap is also needed. Such a strategy should combine demand-side measures, including standards and public procurement rules that reward low-carbon and circular steel, with supply-side policies aimed at improving scrap availability and quality through better collection, sorting and decontamination.
It should also strengthen coordination across the value chain between recyclers, steelmakers and downstream industries, while improving market governance and integration through harmonised end-of-waste criteria, better data on scrap flows and reduced regulatory fragmentation across Member States.
Without such coordination, the transition risks amplifying internal fragmentation and undermining both competitiveness and decarbonisation objectives. Conversely, a shared European strategy can ensure that the transformation of the steel sector reinforces, rather than weakens, Europe’s industrial base.
The Event
This commentary addresses some of the issues that will be discussed at the expert meeting “Italo-German Perspectives on the Future of the European Steel Industry”, organised by IEP Bocconi in collaboration with the Europa-Institut of Saarland University, on Monday, June 15, 2026, at Bocconi University.
The meeting will bring together decision makers, industry representatives, investors and academics to discuss the future of the European steel sector, with a focus on innovation, circular economy and recycling, steel and security, trade defence, global overcapacity and the green transition.
For information: iep@unibocconi.it
IEP@BU does not express opinions of its own. The opinions expressed in this publication are those of the authors. Any errors or omissions are the responsibility of the authors.
