CBAM is quietly making Indian scrap the most valuable raw material in steel.

Indian steel mills are feeling the direct weight of European climate policy. Ministry of Commerce trade data analyzed on 5 November 2026 shows Indian iron and steel export volumes to the European Union fell 19.8 per cent in the first half of fiscal year 2027 (H1 FY27). The sharp contraction comes from a twin shock: European authorities reduced import quota allocations, and the European Union Carbon Border Adjustment Mechanism (CBAM) took structural hold.

Trade flows are changing fast.

The drop signals a permanent shift in how Indian mills sell to western markets. For years, European buyers absorbed substantial volumes of commercial hot-rolled coil and long products from Indian mills. Now, buyers across Europe are cutting back contract orders to avoid carbon liability. At the same time, the regulatory squeeze is turning recycled ferrous scrap from a secondary substitute into the most valuable raw material in Indian ironmaking.

The Cost Gap Between Blast Furnaces and Scrap

The EU Carbon Border Adjustment Mechanism entered its definitive payment phase on 1 January 2026. Under these rules, every tonne of steel and aluminium entering the European Union carries a carbon levy based on its direct and indirect emissions. This import charge equalises the carbon price paid by European domestic mills under the EU Emissions Trading System with the carbon cost of imported goods.

The payment formula exposes the emissions profile of primary steelmakers. Indian integrated mills rely heavily on coal-fired blast furnace and basic oxygen furnace (BF-BOF) routes. Blast furnace steel from India faces an EU default carbon cost of about 251 to 254 euros per tonne. In contrast, competing mills in Turkey produce steel primarily through scrap-based Electric Arc Furnaces (EAF). Because scrap melting uses electricity rather than metallurgical coking coal, Turkish EAF steel faces an EU default cost of only about 90 to 100 euros per tonne.

That creates a cost disadvantage of roughly 150 euros per tonne for Indian material entering European ports. European buyers facing tight steel margins are simply shifting orders to scrap-based suppliers closer to home.

Small Payments in 2026, Strategic Headaches Now

The headline cost figures sound catastrophic, but the current financial impact has a gradual phase-in. In 2026, importers only need to surrender CBAM certificates covering 2.5 per cent of their embedded emissions. This obligation steps up incrementally each year until it hits 100 per cent in 2034. The first formal surrender of CBAM certificates will take place on 30 September 2027.

Even though the cash paid in 2026 represents just 2.5 per cent of the total liability, European buyers are not waiting for 2034 to change suppliers. Purchasing teams in Antwerp and Rotterdam are already factoring future certificate liabilities into long-term procurement contracts. Indian suppliers that cannot provide low-carbon data today are seeing their purchase orders canceled or heavily discounted.

Secondary mills and micro, small, and medium enterprises (MSMEs) face an even steeper climb. Most smaller Indian rolling mills and billet makers do not maintain audited, third-party verified emissions reporting systems. When verified factory data is absent, EU customs authorities apply punitive standard defaults. These EU default values run 30 to 80 per cent higher than the actual operating emissions of the manufacturing plant. An unverified MSME exporter pays a penalty far higher than its actual carbon footprint warrants, effectively shutting small Indian producers out of the European market.

The Scrap Mandi Becomes the Frontline

To survive export carbon limits, Indian primary producers must blend far more scrap into their charge mix. Melting recycled ferrous scrap directly lowers the carbon intensity per tonne of crude steel. Recognizing this reality, Tata Steel commissioned India's first scrap-based Electric Arc Furnace in Ludhiana, Punjab, in March 2026. The Ludhiana plant signals the broader industry roadmap: produce green steel near industrial consumption centres using clean scrap rather than virgin iron ore.

Because European carbon penalties hit traditional blast furnace ironmaking three times harder than scrap melting, Indian primary producers are now actively entering local scrap mandis to secure clean ferrous feeds that can protect their future European sales.

This domestic shift arrives alongside an international squeeze. While Indian steelmakers require greater volumes of scrap to clean up their European export batches, the European Union is simultaneously restricting its own scrap exports under updated waste shipment directives. Europe is actively keeping its recyclable metal inside its borders to feed its own transitioning EAF mills. India cannot easily import European shredded scrap to offset its domestic shortfall.

What This Means for Domestic Scrap Recyclers

The 19.8 per cent export drop in H1 FY27 reveals that low-carbon steel is no longer an environmental buzzword; it is an immediate tariff barrier. As integrated mills reduce their reliance on coal and build out scrap-blending operations, domestic demand for recycled metal will stay tight.

Local scrap dealers, auto shredders, and kabadiwalis are seeing their status change within the industrial supply chain. Steelmakers are seeking long-term supply arrangements for Heavy Melting Scrap (HMS 1 and 2), clean automotive stamping scrap, and structured shredded feed. In the domestic scrap mandis of Mandi Gobindgarh, Jalna, and Raipur, clean scrap is transforming from a price-sensitive alternative into essential compliance inventory. With the 30 September 2027 certificate surrender deadline approaching, the mills that control reliable, segregated scrap streams will be the only ones able to sell steel to Europe.