After over half a dozen muted earnings seasons, steelmakers in the European Union are set for a rebound and the first quarter of 2026 could be an inflection point, analysts say.
Though demand has not recovered to 2022 levels, steel prices have increased faster than expected in recent months thanks to higher energy prices and diminishing imports from outside the bloc due to the EU’s new safeguards.
European hot rolled coil prices have gained about 20% in the past six months.
Barring demand, the planets are now more or less aligned for the sector, Oddo BHF analyst Maxime Kogge told Reuters.
“In the past, we only had some one-off measures against imports. Now the system has been fundamentally structurally strengthened,” Kogge said, referring to the EU’s carbon levy on high-emission imports and trade policy to halve import quotas, set to be in place from July 1.
Higher steel prices will help boost EU steelmakers, which are almost all expected to post higher first-quarter profits compared to the same period last year and to the previous quarter, according to data compiled by LSEG.
Surprisingly, the war in the Middle East has also benefited them in some ways, though probably not enough to outweigh the drawbacks.
Despite the conflict increasing uncertainty, threatening to stall further investments and purchases, and causing a surprise contraction of business activity in the euro zone, it seems to have made European steelmakers more competitive.
“Especially in commodity and specialty chemicals, Asian peers are a lot more affected than their European counterparts because their dependence on energy from the Middle East is much higher,” said Hansjoerg Pack, senior portfolio equity manager at German asset manager DWS.
Higher shipping costs have helped “regionalise” the steel market and buying behaviour has seen a change in Europe, analysts from Bank of America wrote to investors earlier this month, as customers have shifted purchases towards domestic producers due to fears of supply disruptions.
DEMAND DESTRUCTION
Still, questions linger. Following the flare-up in the Middle East, the World Steel Association in April trimmed its 2026 forecast for steel demand in the EU and Britain from 3.2% to 1.3%. That will weigh down the recovery.
Energy also remains a concern. European steelmakers face industrial power prices more than 50% higher than their Chinese and Indian rivals and more than twice those of U.S. producers, Bank of America warned in a separate note.
Moreover, the industry was counting on the German defence plan, which “hasn’t delivered anything so far”, Oddo BHF’s Kogge said, adding that prior hopes the plan would start impacting order intakes from the second half of the year would not materialise.
The pace of the recovery will now hinge on the developments of the war in the Middle East, the analysts said, as higher inflation could lead the European Central Bank to hike interest rates and stall demand.
(Reporting by Javi West Larrañaga )
