Though not due until 2013, planned changes to the European Union's emissions trading system (ETS) are already making waves, with sector association Eurofer planning to legally challenge the EU's regulations.
Sector analysts say the response expected from Europe's steel makers includes more opting to "outsource" carbon creation by boosting imports of semi-finished products.
The most common of these are billet, which is rerolled into rebar and used in construction, and slab, which goes into flat steel products used in household appliances and other goods.
Russia and Ukraine are large producers of both, have low costs and are fairly close to Europe so analysts see firms there potentially benefiting.
EU imports of semi-finished products from Russia and Ukraine in 2010 were just below levels hit prior to the global financial crisis in 2008, data from the International Steel Statistics Bureau shows.
"This will squeeze European steelmakers and they may start to source semi-finished products elsewhere," said Macquarie analyst Colin Hamilton. "I think we will certainly see more imports of semi-finished product."
"I think steelmakers will focus more on value-adding and will focus more on where they source their materials from now on," he said.
"They will also look at managing their price risks when it comes to raw materials perhaps using financial markets a bit more. We will also see more restructuring."
Counting the Costs
Under the ETS from 2013 the 10 percent most efficient steel plants will continue to receive free carbon emission permits while less efficient plants will need to buy these or cut emissions.
Either option means additional costs, with Eurofer estimating a price tag for Europe's steelmakers of roughly 18 billion euros ($25.7 billion) by 2020, although some analysts dispute this figure.
The concern is that a gap will open up between European players burdened with additional costs and offshore rivals who remain free of them.
This is expected to impact not only their buying patterns, but will force Europe's steelmakers to re-examine their growth plans.
Austria's Voestalpine has already cancelled plans for an ore-pellet-facility in Austria citing costs stemming from the carbon emissions involved.
"We estimate that in the worst case the cost for CO2 allowances may go well over a three-digit-million (euro) sum p.a. (per annum)," Voestalpine said regarding the ETS's overall impact.
Carbon Leakage
Nomura analyst Jeff Largey said more EU steelmakers may opt to build plants outside the EU if carbon regulation becomes a costly burden.
"ThyssenKrupp decided to build a steel plant in Brazil as a key component of its Americas growth strategy, but one could say it is also an example of carbon leakage," he said.
The EU maintains that the ETS will be robust enough to avert such a scenario.
"Some industries fear that emission trading systems would expose them to unfair international competition as companies from other major economies do not face similar emission reduction targets," said Isaac Valero Ladron, spokesperson for European Commission climate action head Connie Hedegaard.
"(The concern is) that investments would therefore be displaced but adequate measures were taken in the EU ETS to avoid this so-called carbon leakage."
Technnology Push
Steelmakers are ramping up investment in green technology research but many are concerned that the EU targets are too ambitious considering that affordable technology to sensibly cut carbon emissions does not yet exist.
"All our investments contain a greener technology. For example, we just modernised the de-dusting system of our sinterplant with costs of 30 million euros, said a ThyssenKrupp spokesman.
One hope is that a technology breakthrough could come and provide European steelmakers
