China steel exports were flat sequentially but weaker year over year, while European steelmakers benefit from trade protection and widening spreads

Overview

This report focuses on China’s steel trade data and the policy environment for the European steel industry. The core conclusion is that China’s net finished-steel exports in June did not continue to rise sequentially, but remain below last year on a year-to-date basis; meanwhile, Europe is redirecting the profit pool back to local steelmakers through CBAM, tighter safeguard quotas, and a potential melted-and-poured clause that raises import constraints.

Core views

Morgan Stanley believes the European steel profit pool is flowing back to domestic steelmakers. Higher import parity, a stronger policy framework, improved capacity utilization, and better order inflow support a repricing of EBITDA per tonne. ArcelorMittal SA is viewed as the top pick under this trend because of its local integrated asset base, shipment flexibility, and ability to capture widening regional premiums; Salzgitter AG is also seen as a beneficiary given a clearer earnings inflection point.

Analysis framework

The report uses China’s net finished-steel exports, Europe’s import sources, the EU HRC-China HRC spread, European hot-rolled coil margins, remaining EU safeguard quotas, and stock valuation sensitivity as key analytical threads, linking shifts in trade flows to European local steel prices, orders, EBITDA, and valuation multiples.

Methodology notes

• Valuation methodthrough-the-cycle EBITDA multiple

  through-the-cycle EBITDA multiple

  For carbon steel stocks, a through-the-cycle multiple is applied to average 2027-2028 EBITDA to reflect the first full period in which a stronger European trade policy framework is fully embedded in industry economics; ArcelorMittal uses 7.1x and Salzgitter uses 7.0x, both in line with their respective historical averages.

• Industry supply-demand analysisimport parity and policy constraint

  import parity and policy constraint

  The degree of import restriction is assessed through CBAM, safeguard measures, anti-dumping, and potential rules of origin clauses, and then used to judge Europe’s local supply-demand gap, HRC spread, and steelmakers’ pricing power.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• ArcelorMittal SA (MT.AS)

  top beneficiary

  Strengths

  Local integrated assets, shipment flexibility, improved fixed-cost absorption, and the ability to gain share as marginal tonnes shift to domestic supply.

  Weaknesses

  Still exposed to steel demand, costs, product mix, and the degree of price increase realization.

  Comparison

  Relative to other European carbon steel stocks, the report believes it is better positioned to capture the benefits of widening regional premiums and supply redirection.

  Risks

  Weaker China demand driving higher exports, pressure on seaborne prices, escalating trade frictions, renewed weakness in end markets, narrowing steel price spreads, and unexpectedly large new regional investments.

• Salzgitter AG (SZGG.DE)

  key beneficiary

  Strengths

  A more visible earnings inflection point and margin upside from the European policy framework.

  Weaknesses

  Sensitive to the European demand environment and execution of restructuring/capital expenditure.

  Comparison

  Like ArcelorMittal, it is part of the European carbon steel beneficiary chain, but the report ranks ArcelorMittal as the top pick.

  Risks

  European demand weaker than expected, de-rating in Aurubis’s share price, and delays in SALCOS Phase 1/2/3 spending.

• European carbon steel equities

  sector-wide beneficiary assets

  Strengths

  Import constraints, CBAM, and safeguard measures improve local pricing power and widen regional HRC premiums.

  Weaknesses

  Demand remains soft, and earnings improvement depends on sustained policy support, order conversion, and spread maintenance.

  Comparison

  Compared with an environment more exposed to import pressure, local integrated steelmakers have greater scope for profit recovery under stricter trade policy.

  Risks

  Demand recovery falling short of expectations, global trade frictions suppressing demand, and a renewed increase in Chinese exports.

• China finished-steel exports

  core macro variable

  Strengths

  The June annualized run rate remained above the 2026 forecast, showing that absolute export levels are still high.

  Weaknesses

  Year-to-date exports are down about 5% year over year, and domestic output is weakening.

  Comparison

  Flat month over month in June, but still weaker than the same period last year.

  Risks

  If China demand weakens further, higher exports could once again pressure overseas steel prices.

Key data

• China June net finished-steel exportsannualized at about 119 million tonnesFlat month over month after adjusting for trading days, above the 2026 forecast of about 110 million tonnes.
• Year-to-date year-over-year change in China finished-steel exportsabout -5%The report believes this may reflect rising trade protectionism and China’s export licensing regime.
• Year-to-date year-over-year change in CISA member steel mill outputabout -6%The latest data for late June further show a year-over-year decline of about 5%.
• China’s direct share of European importsabout 11%The report notes that a potential melted-and-poured clause could broaden the policy impact through intermediary countries.
• Potential structural shortfall in Europe10-15 million tonnesEven without a demand recovery, import constraints could tighten supply and support higher clearing prices.
• ArcelorMittal European coil price increase€50/tonneKallanish reported HRC reached a base delivered price of €770/tonne, with September orders already full and lead times extending into October.
• EU HRC spreadUS$426/tonneAbove the long-term average of US$320/tonne, indicating that tighter policy is beginning to translate into steelmakers’ pricing power.
• Potential annualized gross EBITDA upside for ArcelorMittalabout US$1.7bnEquivalent to about 17% of 2027 Visible Alpha consensus EBITDA, before deducting timing, product mix, cost, and realization discounts.
• Valuation impact for ArcelorMittal2027 EV/EBITDA falls from 5.6x to about 4.8xBased on the corresponding ASP increase assumption.

Impact & implications

For investors, the report suggests that the risk-reward profile of European carbon steel stocks is improving: even if end-market demand remains soft, policy constraints may boost domestic steelmaker profits through lower imports, longer delivery lead times, and wider HRC spreads. If the €50/tonne price increase holds, there is upside risk to 4Q26 run-rate EBITDA and 2027 earnings forecasts.

Risks

• Weakening steel demand in China could push up exports and depress seaborne steel prices.
• Escalating trade frictions could further weaken demand.
• End markets could weaken again, causing steel spreads to narrow.
• Policy effects may fall short of expectations, with CBAM or safeguard measures failing to provide sustained support for European domestic prices.
• ArcelorMittal or Salzgitter could face unexpected regional investment, restructuring execution, or capital expenditure risks.
• European demand conditions could be weaker than expected, undermining price increase realization and EBITDA upside.

What to watch

• Whether China’s monthly net finished-steel exports and annualized run rate continue to exceed the 110 million tonne forecast.
• Changes in CISA member steel mill output and domestic demand in China.
• The effect of import constraints after CBAM took effect on January 1, 2026.
• The impact of tighter EU safeguard measures after July 1, 2026 on remaining quotas and import volumes.
• Whether the melted-and-poured clause is implemented and how it affects trade flows through intermediary countries.
• Whether the EU HRC-China HRC spread remains above its long-term average.
• Whether ArcelorMittal’s €50/tonne price increase can be sustained and translate into higher 4Q26 run-rate EBITDA and upgrades to 2027 earnings.
• Salzgitter’s earnings inflection point, HKM restructuring, and progress in SALCOS project spending.