Steel industry under pressure: investments and decarbonization required!

Steel industry under pressure: investments and decarbonization required!

The steel industry in Germany faces enormous challenges, compounded by a combination of political, economic and regulatory factors. The pressure on retailers and steel companies to produce results is growing, forcing numerous companies to take measures such as digitalization and mergers. These developments are closely linked to the political situation, which has fallen into a phase of standstill and waiting since the appointment of a new Federal Chancellor on May 6, 2025. However, expected investment incentives and accelerated approval procedures could offer a way out of this situation.

The construction industry is particularly affected because political requirements such as demanding regulations, customs policy and extensive ESG requirements create uncertainty and thereby limit purchasing options. In addition, high energy prices and the costs of raw materials are placing a heavy burden on steel production. The positive turn lies in the multi-billion investment program for rail, road and energy, which has been welcomed by many in the industry. Nevertheless, the pressure to act remains great.

The investment backlog and its consequences

A massive need for investment to reduce CO2 emissions is pressing the industry, with numerous investments in decarbonization having been postponed for some time. Formerly strong customer sectors of the steel industry are currently in crisis, which is resulting in a gradual decline in demand for steel products. The challenge is compounded by overcapacity, which increases costs and creates risks during market fluctuations.

The EU Green Deal, including the “Fit for 55” initiatives and the CO2 border adjustment mechanism (CBAM), has not yet been finalized and is therefore hindering the planning of transformation steps in companies. These uncertainties make the transition to climate-friendly production significantly more difficult. In the meantime, the proportion of imported steel is growing because domestic production is not sufficient to cover demand.

Financial challenges and future prospects

Banks like UniCredit have recognized the urgency and are offering support not only through short-term financing, but also through long-term advice. UniCredit, for example, is supporting the decarbonization project of the SHS - Stahl-Holding-Saar Group with an investment of 4.6 billion euros, and is investing in the world's first climate-neutral steelworks, which is being built in northern Sweden and will cost over 6.5 billion euros.

The regulatory framework, the constant changes in the EU legal framework and the pressure to comply with ESG standards highlight the need for sound strategic planning in the industry. Traders show themselves to be resilient in difficult financial years; when political stability returns, they can also survive crises. For many companies, the path to solid and sustainable economic stability remains a challenging undertaking. Whether the political guidelines and regulatory pressure can ultimately be used to put the sector on a sustainable basis will be crucial in the next few months.

The steel industry is not only struggling with internal adjustments, but also has to overcome external challenges that undermine planning and competitiveness. There is a clear need for action to successfully shape the future of the industry in Germany and Europe. Marketsteel and Handelsblatt analyze these developments and their effects in detail.