European Union Exports Slow Down Much Ahead Of CBAM Implementation

Chennai: India’s export of iron, steel, aluminium and their products to the European Union have started slowing down much ahead of the implementation of Carbon Border Adjustment Mechanism (CBAM) and deforestation rules. Industry anticipates that a bigger impact would be felt by September when the new orders will have to conform to the emission norms.

CBAM and the deforestation rules from January 2026 are going to affect the exports of iron, steel, aluminium and their products as the emissions from the production are higher than EU’s prescribed levels.

“EU-authorised auditors are working with large iron, steel and aluminium producers on conforming to the standards and on other requirements. However, the small and medium producers of the metal products are still not prepared enough for the new system,” said Saikat Dutta, director, policy, Engineering Export Promotion Council.

In February 2025, aluminium and aluminium products exports to the EU declined by 73 per cent and it further declined by 34 per cent in March. Similarly, iron and steel exports to the EU saw a drop of 62 per cent in February and 48 per cent fall in March. Shipments of iron and steel products were flat in February and were down by 5.6 per cent in March.

In the case of entire engineering goods exports, the EU was the only market with a negative growth among the large four regions in FY25. India’s engineering exports to Italy, Belgium and Spain have declined by 23.1 per cent, 18.7 per cent and 13.2 per cent in FY25.

The new regulations seem to have hit the overall imports by the European Union from across markets in FY25.

The CBAM will be implemented from January 2026 and the production for the export orders will start from September. “We will see a major impact by then,” said Dutta.

The European Union, which was the second largest destination for India’s engineering goods, accounted for 19 per cent of the exports in FY24. This has come down to 17 per cent in FY25. With the new rules setting in, India will be at a disadvantage as it has one of the highest emissions among EU’s suppliers.

For instance, India produces aluminium using coal-based captive plants and the average GHG emission intensity of the domestic aluminium industry is one of the highest globally, at 21-22 tCO2/t Al. In comparison, Europe has one of the lowest GHG intensities, at 6-7 tCO2/t Al, finds Crisil.

India is working on a Free Trade Agreement with the EU. However, with the new rules coming into effect, FTA will not provide parity to Indian exports. After the implementation of the FTA, the EU products will enter India at zero duties, while Indian products will have to pay 20-35 per cent as CBAM charges.

Currently, exporters are not excited about EU shipments and are looking at diversifying their markets. The West Asia and Northern Africa region has increased its share of exports from 15 per cent in FY24 to 17 per cent in FY25. UAE, Saudi Arabia and Latin America are increasingly buying goods from India.