CBAM: An opportunity for generating higher revenue from Indian steel export

Ever since the European Union (EU) notified the Carbon Border Adjustment Mechanism (CBAM) in mid-2023, the Indian steel industry has proactively been examining ways to meet the challenges. This border tax is a tariff on carbon-intensive products such as iron and steel, electricity, aluminium, cement, fertilizers, and hydrogen imported to the EU. Starting January 1, 2026, the EU will begin collecting the carbon tax on each consignment of steel items.

Official data shows that Flat-rolled products (Hot-rolled and Cold-rolled) hold a major share in the Indian steel export basket. India exports Hot-rolled products to more than 100 countries; however, only five EU countries—Italy, Belgium, Spain, Greece, and Poland—accounted for 25% of its Hot-rolled exports during FY 22-23. This high level of market concentration could distort the effects of CBAM on Indian steelmakers if they do not diversify their export destinations.

India is recognized as a significant player in the global economic landscape, negotiating with untapped markets in Africa, Latin America, and the Middle East. The government of India, along with the domestic steel industry, will soon introduce Made-In-India branded steel products to the world market, providing opportunities for Indian steelmakers to expand their businesses abroad.

In this favorable situation, smaller, less stringent countries like Benin, Congo, Egypt, Mexico, Qatar, Somalia, Turkey, and the United Arab Emirates have been identified as potential markets for Indian steel exporters to mitigate the CBAM impact. In FY 22-23, India exported different Hot-Rolled products, albeit in low volume (13,617.3 tons) to these countries at an average price of Rs. 76,700 per ton, whereas the same products were exported in high volume (91,410.5 tons) at Rs. 66,695 per ton to the EU countries.

The Indian steel sector could have generated an additional revenue of approximately Rs. 91 crores from exporting the selected HR products to the mentioned countries in Africa, Latin America, and the Middle East instead of the EU countries, especially with the upward trend of Indian Rupee depreciation.

Despite macroeconomic challenges in 2022, high GDP growth in several small but potential markets underscores the viability of Indian steel products on the international stage. Countries like Benin, Congo, Egypt, and Turkey exhibited robust economic growth rates, ranging from 20% to over 26%, highlighting their expanding markets. Concurrently, China’s strategy to reduce its crude steel production, maintaining levels around 1,019 million tons in 2022 and 2023, presents an opportunity for Indian steel to fill the gap and capture significant market share globally.

Thus, the CBAM will only have a small effect on Indian steel trade if the country can expand to the right destinations with the right products.

The writer is Deputy Director General (ISS 2001 Batch), M/o Steel, Udyog Bhawan, New Delhi.