China steel exports remain high, while European trade barriers drive profit recovery for local steel mills

Overview

The report tracks China's July steel trade data and changes in European import policies. China's net exports of finished steel products declined only slightly, with absolute levels still high; Europe is further restricting imports due to CBAM, safeguard measures, quota constraints, and potential anti-dumping measures on cold-rolled products. Morgan Stanley believes the European steel profit pool is shifting back to local steel mills, and improvements in regional premiums, orders, and capacity utilization will support the reshaping of per-tonne steel EBITDA.

Core views

China's steel exports have not yet contracted materially and may continue to weigh on global seaborne steel prices in the near term, but the European market is strengthening insulation through policy barriers and the quota system. European steel mills already raised prices in July, and companies reported that Q3 orders are full while Q4 orders are being replenished. European carbon steel companies with local integrated assets, flexible shipment capabilities, and higher sensitivity to regional premiums are better positioned. Among them, ArcelorMittal SA can adjust output, improve fixed-cost absorption, and capture import substitution share, while Salzgitter AG benefits from sensitivity to local pricing as well as optionality from HKM and slab assets.

Analysis framework

The report combines CEIC China steel import and export data, Eurofer and Eurostat European import data, EU quarterly safeguard quota usage, and Bloomberg steel prices and raw material prices to analyze export trends, trade flows, import substitution, and per-tonne steel profitability; stock valuation uses a through-cycle multiple approach based on average EBITDA for 2027–2028.

Methodology notes

• Trade flow analysisNet export run rate of finished steel products

  Net exports are calculated as exports minus imports, and monthly MoM, YoY, and annualized levels are used to assess supply spillover pressure.

  China's net exports of finished steel products were 9.676 million tonnes in July, down 2% MoM, corresponding to an annualized level of around 116 million tonnes, still above the 2026 forecast of around 110 million tonnes.

• Policy and supply-demand analysisImport constraints and regional supply gap

  Assess Europe's importable supply and local steel mills' pricing power through CBAM, safeguard quotas, anti-dumping measures, and quota utilization rates.

  Policy tightening could create a structural supply gap of around 10–15 million tonnes in Europe and drive increases in import parity, capacity utilization, orders, and regional steel price premiums.

• Profitability analysisHot-rolled coil per-tonne steel spread

  Use the spread between European hot-rolled coil prices and raw material costs to measure steel mills' per-tonne gross profit and EBITDA recovery potential.

  The European hot-rolled coil spread has risen to US$467/tonne, while the long-term average is around US$320/tonne, indicating a clear improvement in the regional profitability environment.

• Relative valuationThrough-cycle EV/EBITDA valuation

  Apply each company's own historical average multiple to projected average EBITDA for 2027–2028 to reflect normalized earnings after Europe's new trade policies take full effect.

  The report uses historical average multiples of around 7.1x and 7.0x respectively to value the relevant European carbon steel companies.

Asset mapping & comparison

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

• ArcelorMittal SA (MT.AS)

  Top pick for European carbon steel profit recovery

  Strengths

  Has local integrated assets and flexible output and shipment adjustment capabilities, enabling it to improve fixed-cost absorption and capture import substitution share.

  Weaknesses

  Profitability remains affected by European end-demand, global steel prices, and large capital investments.

  Comparison

  Compared with other European carbon steel companies, it has stronger capabilities in output adjustment and market share gains.

  Risks

  Weaker China demand driving increased exports, renewed deterioration in end-demand, contraction in steel spreads, and larger-than-expected investments in new regions.

• Salzgitter AG (SZGG.DE)

  Beneficiary of European local pricing and asset restructuring

  Strengths

  Sensitive to German and European local steel prices, with value optionality from HKM, the slab business, and its Aurubis stake.

  Weaknesses

  Value realization depends on European demand, progress in HKM restructuring, Aurubis valuation, and execution of the SALCOS project.

  Comparison

  Compared with ArcelorMittal SA, it has higher sensitivity to local pricing, but weaker scale, regional diversification, and output adjustment capability.

  Risks

  Downward adjustment in Aurubis share price, weaker-than-expected European demand, pullback in steel spreads, and delays in spending across phases of SALCOS.

• European carbon steel equities

  Key beneficiary assets from import restrictions and wider regional premiums

  Strengths

  CBAM, safeguard measures, anti-dumping policies, higher import parity, and improved orders jointly support per-tonne steel profitability.

  Weaknesses

  The industry remains cyclical, and demand recovery has not yet been confirmed.

  Comparison

  Compared with producers exposed to global seaborne steel prices, local integrated steel mills in Europe are more strongly protected by policy insulation.

  Risks

  Weaker-than-expected policy implementation, shifts in import sources, renewed demand contraction, and rising raw material costs.

Key data

• China finished steel product exports in July10.121 million tonnesTotal exports in July 2026.
• China finished steel product imports in July445,000 tonnesTotal imports in July 2026.
• China net exports of finished steel products in July9.676 million tonnesDown 2% MoM, up 3% YoY, and down 4% YoY year-to-date.
• Annualized net export run rateApproximately 116 million tonnesAbove Morgan Stanley's China materials team's forecast of around 110 million tonnes for 2026.
• Change in China's steel productionDown 6.3% YoY year-to-dateBased on the CISA survey, but exports have still not shown a material decline.
• Potential structural supply gap in EuropeApproximately 10–15 million tonnesWithout a demand recovery, CBAM and stricter safeguard measures could still create this gap.
• EU overall Q3 quota utilization rateApproximately 40%Some quotas for Turkey and Indonesia have been exhausted, and India's utilization rate exceeds 50%; the three account for about 45% of the EU's hot-rolled coil imports year-to-date.
• European hot-rolled coil spreadUS$467/tonneThe long-term average is around US$320/tonne.

Impact & implications

European trade policies are weakening the marginal pricing role of imported steel and redirecting the profit pool back to local steel mills. If import constraints persist, European steel mills are expected to upgrade earnings through price hikes, higher operating rates, improved fixed-cost absorption, and expanded market share. China's elevated exports remain a risk to global steel prices, but Europe's policy insulation makes local steel companies more defensive and more leveraged to earnings upside than steel companies in other regions.

Risks

• China's steel demand weakens further, leading to increased exports and lower global seaborne steel prices.
• European end-market demand deteriorates again, causing steel spreads and orders to shrink.
• The implementation intensity of CBAM, safeguard measures, or anti-dumping policies is lower than expected.
• Steel companies make larger-than-expected investments in new regions, weakening free cash flow and shareholder returns.
• ArcelorMittal SA's buyback progress is slower than expected.
• Salzgitter AG faces a downward adjustment in Aurubis valuation, HKM restructuring falling short of expectations, and delays in SALCOS project spending.

What to watch

• Whether China's monthly net exports of finished steel products can continue to decline from the high annualized level of around 116 million tonnes.
• Whether China's steel production decline ultimately feeds through to a contraction in export volumes.
• The pace of EU Q3 safeguard quota usage and quota changes for major source countries such as Turkey, Indonesia, and India.
• The final content and implementation timing of EU anti-dumping measures on cold-rolled steel products.
• European steel mills' Q4 orders, implementation of price increases, and capacity utilization.
• Whether European hot-rolled coil spreads can remain above the long-term average.
• ArcelorMittal SA's output adjustments, market share, and buyback execution.
• Salzgitter AG's HKM restructuring, changes in Aurubis value, and progress on the SALCOS project.