India’s ongoing trade negotiations with the European Union are drawing unusual attention from the country’s steel industry. At the heart of the discussions is not finished steel, tariffs, or quotas, but steel scrap — a raw material that is increasingly central to how the next generation of steel will be made.

According to people familiar with the talks, provisions to ease imports of steel scrap from the EU are likely to be included in the India–EU free trade agreement expected to be announced on January 27. Industry executives view this as a crucial development at a time when the EU’s Carbon Border Adjustment Mechanism (CBAM) has begun to directly affect the economics of Indian steel exports to Europe.

The EU is the world’s largest exporter of steel scrap. For India, where traditional blast furnace production still dominates, scrap is becoming strategically important as leading steelmakers accelerate investments in electric arc furnace (EAF) and direct reduced iron (DRI) technologies — routes that have significantly lower carbon emissions compared to conventional steelmaking.

Domestic scrap availability in India remains limited and fragmented. As a result, imported scrap has become an essential input for companies looking to scale low-carbon steel production. Industry sources involved in the negotiations indicated that easier access to EU-origin scrap is being actively addressed as part of the trade pact.

This shift in focus has been triggered by CBAM, which came into force earlier this month. The mechanism effectively imposes a carbon-linked duty of up to 30 percent on carbon-intensive steel entering the EU. For Indian producers, many of whom export to Europe, this introduces a structural cost disadvantage unless they can demonstrate lower embedded emissions in their steel.

While the EU positions CBAM as a climate policy tool, industry executives in India argue that it also alters competitive dynamics by protecting European steelmakers at a time of weak regional demand. Imports from countries such as India, China, Vietnam and South Korea are directly affected by the new carbon pricing framework.

At the same time, the EU has also moved to restrict the export of steel scrap through policy measures aimed at preserving feedstock for its own green steel ambitions. This has raised concerns among Indian producers who depend on European scrap for EAF-based operations.

The convergence of these two policy trends — CBAM on finished steel and tighter control over scrap exports — has made access to EU scrap strategically significant for Indian steelmakers. Without reliable scrap imports, the ability of Indian firms to scale up low-emission steel production could be constrained, affecting both export competitiveness and domestic decarbonisation goals.

The World Steel Association identifies EAF-based steelmaking as the route with the lowest carbon emissions per tonne of steel. Recognising this, major Indian steel companies have announced plans to expand EAF and DRI capacities over the coming years.

Tata Steel and JSW Steel are among the companies investing in cleaner steel technologies. In a recent investor interaction, JSW Steel’s management acknowledged the potential impact of CBAM on its European exports and indicated a gradual shift in focus towards the domestic market. The company noted that its exports to Europe have averaged around 1.3 million tonnes annually over the past few years.

This transition is not immediate. India’s steel ecosystem — from raw material sourcing to plant configuration — is deeply aligned with blast furnace operations that rely on iron ore and coking coal. Moving towards scrap-based production requires not just technology upgrades but also a steady and affordable supply of quality scrap.

That is where the FTA assumes significance. If scrap imports from the EU are eased through lower trade barriers or preferential access, it could materially improve the economics of EAF steelmaking in India.

From a policy perspective, the development aligns with India’s broader push for green steel and industrial decarbonisation. It also reflects a recognition that trade agreements are increasingly intertwined with climate-linked industrial strategies.

For Indian steel exporters, especially those with exposure to Europe, the ability to reduce embedded carbon through greater scrap usage can directly influence cost competitiveness under CBAM. Over time, this could determine whether exports to Europe remain viable or shift towards domestic and other markets.

The development is particularly relevant for steel producers investing in EAF and DRI capacities. Scrap import flexibility can accelerate the transition towards low-emission steelmaking and reshape input cost structures for such facilities.