In this series, APG experts share their perspectives on key developments across sectors such as automotive, big tech, and healthcare. In this issue, Ileana van Hagen-Balboa (Senior Portfolio Manager Credits) and Jan-Willem Brommersma (Senior Portfolio Manager Analysis & Engagement) dive into the steel and cement industries to uncover both challenges and opportunities.
Published on:
6 November 2025
In brief
• While European steelmakers are grappling with low demand, cheap imports, and high energy and carbon costs, major players in the cement industry are in a much stronger position.
• Decarbonizing the steel and cement sectors will require significant time and investment.
• Europe’s focus on decarbonization presents both substantial risks and opportunities for companies.
As the global automotive industry faces three existential trends, the steel sector also finds itself at a crossroads. In this industry, deglobalization and—particularly in Europe—decarbonization are the key themes.
Weak demand and high costs
“The steel sector operates on thin margins and is inherently global. When China overproduces, it exports the surplus to the rest of the world,” says Brommersma. “In Europe, decarbonizing facilities like Tata Steel is a major challenge—not only technically, but also financially. At the same time, governments are questioning whether they need to maintain these assets domestically. Given the current geopolitical tensions, governments are becoming less inclined to let go of such strategic sectors, even if they are not profitable.”
Steel is among the sectors most affected by the U.S.-initiated tariff war, adds van Hagen-Balboa. “The influx of Chinese steel surpluses into Europe has exacerbated the pressure on an already strained sector, which is struggling with weak demand and high energy and carbon costs.”
A nudge from Donald Trump
Adding to the complexity is the growing divergence in sustainability policies between the two major Western economic blocs. “While the U.S. is easing its decarbonization efforts, the European Union is doubling down with two major initiatives: the Emissions Trading System (ETS) for domestic producers, and the upcoming Carbon Border Adjustment Mechanism (CBAM), which aims to level the playing field with high-emission producers outside the EU.”
The EU’s relatively strict regulations and elevated energy prices are making European steel less competitive compared to U.S. and Chinese producers. Van Hagen-Balboa notes: “For the first time, after years of lobbying—and with a nudge from Donald Trump—the European Commission has introduced ‘A European Steel and Metals Action Plan’. This is the most assertive move in decades to protect the European steel industry. It also reflects the EU’s growing emphasis on defense and strategic autonomy.”
At the same time, the European Commission is phasing out free allowances under the ETS, without making exceptions for the steel sector. “Currently, the ETS price is around €70 per ton. Once the free allowances are fully phased out, it is estimated that the price could rise above €130 per ton. That’s a significant cost burden for these companies,” van Hagen-Balboa adds.
“Ultimately, it comes down to the fact that production outside Europe is often cheaper due to lower energy costs,” Brommersma concludes. “That’s why it’s essential to have mechanisms like tariffs and carbon border adjustments in place—otherwise, European steel companies risk going out of business.”
Despite the serious challenges facing the cement and steel industries, the outlook is not entirely bleak
Greening the supply chain
The steel industry accounts for approximately 6% of global CO₂ emissions, with a similar share in Europe. It has also been one of the largest recipients of green subsidies, either directly from governments or through the European Innovation Fund. “Roughly €15 billion has been earmarked to support the industry’s green transition. Combined with the EU’s recent implementation of quotas and tariffs, this could help the steel sector survive and decarbonize,” van Hagen-Balboa explains.
Another regulatory boost has come from the EU’s inclusion of low-carbon steel in its sustainable finance taxonomy. This move aims to further green the supply chain, enabling issuers to tap into the market with labeled and green bonds dedicated to financing low-carbon steel production.
Strong demand for low-emission cement
Like steel, the cement industry also faces a long and costly road to decarbonization, says Brommersma. “But a key difference is that cement is a regional rather than a global business.”
This distinction puts cement companies in a very different position, van Hagen-Balboa adds. “While steel producers are struggling with cheap imports, high CapEx, low prices, and underutilized capacity, European cement companies are faring much better. Cement doesn’t travel well, and environmental regulations are already stringent. Carbon credit allocations are based on historical production levels, which benefits larger, more efficient producers. These companies often have surplus allowances they can use or sell, while smaller, less efficient players must purchase increasingly expensive credits.”
Moreover, regulation in the construction sector is working in their favor. “For many public infrastructure projects, there are minimum requirements for the use of low-emission cement. As a result, large producers offering eco-friendly cement and concrete are seeing strong demand and can charge a premium for their green products. Financially, they’re in a very strong position.”
The outlook
Looking ahead to the next five to ten years, Brommersma expresses concern that the high costs of decarbonization could slow down economic growth in Europe. “For example, new technologies are being developed to produce steel using hydrogen. If that hydrogen is generated with green electricity, the result is so-called ‘green steel.’ But this comes at a steep price—steel consumers would have to pay an additional €100 to €300 per ton for the green premium. This underscores the need for the EU to continue supporting the steel and—to a lesser extent—cement industries if it wants to maintain strategic autonomy.”
Van Hagen-Balboa offers a more optimistic perspective: “You can also view this as an opportunity. Europe is a global leader in green technology innovation. In both cement and steel production, regulatory pressure is actually driving innovation. Of course, if Europe is the only region enforcing strict environmental policies while others relax theirs, the cost burden becomes significant. These innovations require high capital expenditures. Still, for energy-intensive industries, there are opportunities within Europe—especially when they are shielded from unfair competition through import protections.”
She adds that many of these industries are also eyeing the potential of increased defense spending and large-scale infrastructure investments announced across Europe. “Take the Netherlands, for example. The country’s ambitious housing plans will demand vast quantities of steel, cement, and raw materials. So despite the serious challenges facing the cement—and especially the steel—industries, the outlook is not entirely bleak.”