PwC Expects a Shift in Steel Production
While energy-intensive steel production is increasingly taking place outside of Europe, value creation in this country is expected to rely more heavily on knowledge, technology, and further processing in the future.
August 6, 2026
Source: E & M powernews
High energy and CO2 costs are driving structural change in Europe’s steel industry. Primary production is expected to increasingly shift to lower-cost locations outside Europe by 2040.
The European steel industry is in the midst of a structural crisis: global overcapacity and strong import pressure are compounded by high energy and production costs. CO2 pricing through the EU Emissions Trading System and the Carbon Border Adjustment Mechanism (CBAM) are placing an additional burden on the blast furnace route, according to a new study by PWC consultants on the current outlook for the European steel industry. Added to this is growing competition in low-emission steel: New production capacities are emerging in the Gulf states and India, partly because these countries have access to cheap energy and possess raw materials.
“Our analysis shows that the European steel industry is facing a profound but necessary structural transformation. This stems from rising CO2 pricing, a persistent energy cost differential between Europe and resource-rich regions, and the growing technological maturity of low-CO2 production routes,” notes PwC.
According to the consultants, the most cost-effective locations for low-carbon primary steel are outside Europe. For example, the Gulf states and India have a structural advantage when it comes to green steel. This is because their competitors can produce hydrogen—which they use for direct reduction to produce iron from iron ore—at a significantly lower cost using solar power.
Production Costs for Green Steel Too High
In Europe, production costs for green steel are still significantly higher than those of the blast furnace route. Only Scandinavia achieves competitive primary steel costs under optimistic assumptions. According to PwC, no scenario presents a competitive path for energy-intensive basic materials production in Central Europe.
“The conclusion is clear: Coal-based primary steel production has no future in Germany. It is therefore vital for the local metalworking industry to realign itself early on across its value chain stages,” concludes Alexander Schröder, Manager of Energy & Decarbonization at PwC Germany.
From this, the consultants derive three strategic implications for the transformation of the European steel industry. First: European steel companies must actively shape the relocation of energy-intensive production stages. Second: The value creation remaining in Germany must focus on knowledge-intensive products. Third: Knowledge-intensive manufacturing requires specific locations. Such clusters for steel production could be fostered through favorable framework conditions. These include accelerated permitting processes, access to affordable energy, port infrastructure for importing intermediate products, and structural collaboration between universities and industrial players.
“The steel industry of 2040 will be fundamentally different. The blast furnace route will become uneconomical, the geography of primary production will shift, and the value of European steel processing will increasingly have to be measured by the knowledge embedded in the product, not by the material itself,” emphasized Andree Simon Gerken, Partner for Energy Transition & Decarbonization at PwC Germany.
Author: Eva-Maria Vochazer
