Street Calls of the Week
Investing.com -- European steelmakers are bracing for a potential 50% cut in import quotas as the European Commission prepares to outline new protectionist measures.
While the move would be more aggressive than many expect, Barclays analysts warn it may do little to restore utilisation to sustainable levels.
The current safeguard system, in place since 2018, applies a 25% tariff on imports above quota limits. With those rules set to expire in 2026, pressure from industry group Eurofer and 11 member states has mounted for quotas to be halved and tariffs lifted to 40–50%.
The intention is to push steel utilisation back toward the 85% level considered healthy. Yet Barclays analysts believe that “getting to 85% utilisation looks almost impossible based on trade measures alone.”
According to their analysis, a 50% cut in quotas would likely reduce imports by only about 30%, since not all quotas are fully used and some countries remain exempt. That would trim roughly 8.8 million tonnes of imports and lift utilisation by about 4.4 percentage points, to just above 73%.
The bank estimates the effect on profitability would be modest, supporting a structural spread uplift of around $15 a tonne and translating into 2–8% earnings upgrades by 2026.
“More of the potential upside could come from a structural rerating (possibly back towards 6-7x long-term levels, vs. 4-5x today) if the market is convinced that import volatility is behind us,” analysts led by Tom Zhang added.
Barclays also flags the risk of “watering down” as the proposal moves through the European legislative process, where steel-producing states and steel-consuming states are often divided.
Even if a tough headline cut is agreed, the analysts caution that the benefits may be short-lived without stronger demand or permanent capacity closures.
Still, markets are not pricing in a 50% cut, with expectations closer to 25–30%. On that basis, steel equities could rally on the announcement, particularly names such as ArcelorMittal, thyssenkrupp, Aperam and Outokumpu, which carry more leverage to quota changes.
The analysts’ preferred pick remains Voestalpine, which they describe as “defensive, cash-generative, and still offers some upside from stronger long-term protectionism”.
A more ambitious scenario, with utilisation pushed up to 85%, could yield spreads $115 a tonne higher and earnings upgrades of up to 48%.
But Barclays stresses such levels would require a combination of trade restrictions, demand recovery, and domestic capacity cuts — well beyond what import quota adjustments alone can deliver.