Eramet says Indonesian nickel pig iron has effectively lost the European market as the carbon border levy enters its first year of real charging
JAKARTA and PARIS, September 30, 2026 / The European Union’s carbon border adjustment mechanism has produced its first clear casualty in the base metals trade. Eramet, the French mining and metals group that is a partner in Indonesia’s Weda Bay nickel complex, said on Tuesday that Indonesian nickel pig iron has effectively lost access to the European market because of its carbon footprint, a statement that confirms in corporate language what traders have been pricing since the mechanism began charging in January.
The reason is arithmetic rather than policy animus. Indonesian nickel pig iron, the feedstock that transformed the global stainless steel industry over the past decade, is smelted overwhelmingly on coal-fired captive power. Under the mechanism’s default emission values, that production route carries an embedded carbon figure high enough that the certificate cost attached to a tonne landed in Europe exceeds the margin available on the sale.
Independent assessments put the charge at roughly 321 euros per tonne for nickel pig iron and in the region of 595 euros per tonne for stainless steel semi-finished products, figures derived from country-specific default intensities of about 6.150 tonnes of carbon dioxide per tonne for ferro-nickel and about 8.670 tonnes per tonne for stainless semis. Against prevailing nickel unit economics, those numbers are not a headwind. They are a closed door.
From ore ban to carbon exposure
The sequence that produced this outcome began in 2014, when Indonesia banned the export of unprocessed nickel ore in order to force smelting onshore. The policy worked on its own terms, and spectacularly. Processing capacity that had been concentrated in Chinese coastal smelters relocated into Indonesian industrial parks on Sulawesi and Halmahera, Indonesia became the dominant global supplier of nickel units, and the country captured a share of the value chain that ore exports had never delivered.
The industrial model that achieved this was built on speed and cost. The parks were developed with captive coal generation because coal was available, financeable and fast, and because at the time no buyer was pricing the emissions. Rotary kiln electric furnace lines running on that power produce nickel pig iron at a cash cost that displaced competing routes worldwide. The same configuration now produces a carbon intensity that the European mechanism prices explicitly.
Eramet, which holds an interest in Weda Bay Nickel, framed the consequence in market rather than political terms. The company indicated that the widening carbon cost differential will push Indonesian nickel pig iron toward Asian stainless steel markets rather than Europe, a reorientation of flow rather than a loss of demand in absolute terms.
The company has had a difficult year in Indonesia on separate grounds. Its mining quota under the RKAB permitting system was cut sharply for 2026, prompting a request for an increase and raising questions about the operating rate at Weda Bay. The carbon constraint on European sales arrives on top of a volume constraint at the mine.
The scale of what is being displaced
Indonesian exposure to the European market had been growing quickly before the mechanism began charging. Ferro-nickel shipments to the EU ran at roughly 142,600 tonnes in 2025. Stainless steel semi-finished products reached close to 350,000 tonnes, a fivefold increase on the prior year as Indonesian integrated producers moved up the value chain from nickel units into slab and billet.
That trajectory has reversed. Early 2026 trade data shows competitive displacement already under way, with Brazilian steel slab moving into European buyers’ order books at Indonesia’s expense. Brazilian semis carry a materially lower embedded carbon figure, partly because of the country’s hydro-weighted power mix and partly because of the production routes employed, and that differential is now a price advantage expressed in euros per tonne at the European border rather than a sustainability talking point.
The pattern is the one the mechanism was designed to create. Whether it is the pattern European policymakers intended in this particular trade is a separate question. Europe does not produce nickel pig iron, and its stainless producers need nickel units from somewhere. Substituting Indonesian material for Brazilian slab addresses the embedded carbon of the import without addressing the emissions of the displaced production, which continues and is consumed in Asia.
The mechanism’s own machinery kept moving
The Indonesian development coincided with two procedural milestones in the mechanism’s administration, both of which matter to importers.
On September 30 the Commission published its assessment of the de minimis threshold that exempts small importers from the regime. Under Article 2a(3) of the CBAM Regulation, the Commission must verify that the single mass-based threshold captures no more than 1 percent of the embedded emissions in imported goods and processed products, and must adopt a delegated act modifying the threshold where the calculation deviates by more than 15 tonnes. Assessing the period from April 1, 2025 to March 31, 2026, the Commission concluded that the 50-tonne threshold would exempt 0.87 percent of embedded emissions, below the 1 percent ceiling. No adjustment was therefore required, and the 50-tonne threshold stands.
The practical significance for traders is that the exemption many small and mid-sized importers have relied on since the threshold was introduced is confirmed for now, but it is confirmed on a measurement that sits reasonably close to its ceiling. A further increase in exempted volumes, or a shift in the composition of small-lot imports toward more carbon-intensive goods, would push the figure toward the trigger point. Importers operating near 50 tonnes have a planning reason to watch the next assessment rather than treating the threshold as settled.
The second milestone was legal. On September 25 the World Trade Organization’s Dispute Settlement Body established a panel to examine Russia’s challenge to the mechanism, registered as DS639. Moscow’s case argues that the measure breaches multiple WTO agreements and contends that the free allocation of emission allowances under the EU’s domestic emissions trading system operates as a prohibited export subsidy to European producers.
More than eighteen members reserved third-party rights, among them China, India, the United States, Brazil, Japan, the United Kingdom and South Korea, a list that captures most of the economies with significant carbon-intensive exports to Europe. The breadth of participation signals that the ruling, whenever it comes, will be read as a verdict on carbon border measures generally rather than on one complainant’s grievance.
The EU’s position was stated at the Geneva meeting by Davide Grespan, minister-counsellor at the EU delegation, who said the mechanism “is a climate-oriented, environmental policy tool that is designed in a non-discriminatory and even-handed manner to comply with WTO rules.” An Indian government official, describing the decision to reserve third-party rights, said simply that “this is a constructive step for India as it will allow the country to see what is happening in the dispute.”
Importantly for anyone making sourcing decisions now, the panel’s establishment changes nothing operationally. The mechanism continues to apply in full while the dispute proceeds, and WTO panel proceedings of this complexity run for years rather than months. Companies cannot plan on a legal reprieve.
Stakeholder positions
Indonesian officials have argued consistently that the mechanism penalises a development path the country was entitled to pursue, and that the carbon accounting captures the power mix available to Indonesian industry rather than any deficiency in its processing technology. The country’s nickel sector has also pointed out that a large share of the emissions now priced at the European border were incurred in building an industry that European and other buyers actively encouraged by purchasing its output.
European stainless producers take a different view. Their case is that the mechanism simply equalises treatment between imported material and domestic production already paying a carbon price under the emissions trading system, and that absent such an equalisation the domestic carbon price would function as a subsidy to imports.
Analysts covering the nickel complex note a third effect that neither side emphasises. By shifting Indonesian nickel pig iron toward Asian stainless mills, the measure concentrates the lowest-cost nickel units in the hands of producers who compete with European stainless in third markets. The European stainless sector gains protection at its own border and faces, over time, a competitor supplied with the cheapest available feedstock. Whether that trade is favourable depends on how much of European stainless output is sold inside the bloc.
What it means for importers and supply chains
For buyers of nickel units, the practical consequence is that embedded carbon has become a primary sourcing criterion alongside price, grade and delivery. A supplier’s power mix is now a line item in landed cost. European buyers who had treated Indonesian material as the default low-cost option are rebuilding supplier panels around Brazilian, and to a lesser extent other, origins whose default intensities produce a tolerable certificate charge.
For stainless steel fabricators, the exposure runs further down the chain than the direct import. Semi-finished stainless products are themselves within the mechanism’s scope, which means a fabricator importing slab or billet carries the embedded carbon of the nickel route used upstream. Supply agreements that specify grade and chemistry but say nothing about production route and power source leave that exposure unmanaged.
For producers in Indonesia and in comparably placed economies, the strategic response divides into two paths. The first is to decarbonise the processing route, which in practice means substituting captive coal with grid or renewable power, a capital programme measured in years and billions of dollars, and one whose returns depend on continued European demand that has in the meantime gone elsewhere. The second is to accept the reorientation toward Asian markets and compete there on cost, which is the path Eramet’s comments anticipate.
A third possibility, less discussed, is verification. The mechanism’s default values are deliberately conservative, applied where an importer cannot produce verified actual emissions data for the specific installation. A producer whose real intensity is materially below the country default has a commercial interest in substantiating that figure to the standard the regulation requires. For installations genuinely running on coal power the gap is unlikely to be decisive, but for newer lines with partial grid or renewable supply the difference between a default and a verified figure can be the difference between a closed and an open market.
The precedent
The mechanism is the first instrument of its kind to move from reporting to charging at scale, and the Indonesian nickel case is the first clear instance of a major trade flow being priced out of Europe on carbon grounds alone. No anti-dumping finding was made, no subsidy was alleged, no safeguard was invoked. A default emission value and a certificate price did the work.
Other jurisdictions are watching. The United Kingdom has legislated its own carbon border mechanism, and several economies have signalled interest in comparable instruments. If carbon intensity becomes a routine determinant of market access across multiple large markets, the competitive position of entire industrial complexes will be set by decisions about power supply taken years earlier, often for reasons that had nothing to do with trade.
For now the immediate facts are narrower and clearer. The de minimis threshold remains at 50 tonnes. A WTO panel is examining the mechanism’s legality and will not report soon. And Indonesian nickel pig iron, the material that reshaped the global stainless industry, is being redirected away from the European market by a cost that did not exist eighteen months ago.
How the charge is built
Understanding why 321 euros per tonne is a prohibitive number requires following the calculation the mechanism performs.
The regime works by requiring the importer of a covered good to surrender certificates corresponding to the greenhouse gases embedded in its production, priced by reference to the weekly average auction price of allowances in the EU emissions trading system. Where the production route in the exporting country faces no equivalent carbon price, no deduction applies, and the full embedded figure is charged.
Embedded emissions may be established in one of two ways. An importer may rely on verified actual data for the specific installation, reported according to the methodology set out in the implementing rules and checked by an accredited verifier. Where that data is unavailable or does not meet the standard, default values apply, set by reference to the average emission intensity of the exporting country’s production for the relevant good, with an upward adjustment designed to ensure that reliance on defaults is not a commercially attractive alternative to measurement.
For ferro-nickel produced on the Indonesian route, the default figure in circulation is about 6.150 tonnes of carbon dioxide per tonne of product. For stainless semi-finished goods the comparable figure is about 8.670 tonnes. Multiplying those intensities by a European allowance price in the range the market has traded this year produces the 321 and 595 euro figures. The numbers are not disputed by the industry. What is disputed is whether they describe the installations accurately and whether the resulting commercial outcome was the intended one.
The sensitivity cuts both ways. A sustained fall in the European allowance price would reduce the charge proportionally, and a rise would deepen it. That makes the viability of a given import route a function of a carbon market that exporters cannot hedge in any conventional sense and over which they have no influence at all. For planning purposes, several trading houses have begun running landed cost models with allowance price scenarios alongside the freight and currency scenarios they already maintain.
The nickel market consequence
The redirection of Indonesian material does not reduce the quantity of nickel units available globally. It changes where they are consumed and at what relative price.
Asian stainless producers, principally in China but increasingly in India and Southeast Asia, become the natural home for nickel pig iron that cannot clear the European border economically. In a market already characterised by ample supply, the arrival of additional tonnage seeking a home exerts downward pressure on Asian nickel unit pricing. European buyers, meanwhile, pay a premium for the lower-carbon alternatives whose supply is finite.
That spread, between a carbon-constrained European price and an unconstrained Asian price for the same metal content, is the mechanism’s most visible market artefact. It is also the clearest illustration of the leakage problem the measure was designed to solve and the one it cannot solve unilaterally. Emissions avoided at the European border are not emissions avoided in the atmosphere if the production simply serves a different customer.
Indonesian policymakers have made that argument directly, and it is one of the threads running through the broader third-party interest in the WTO proceedings. Several of the economies that reserved rights in DS639 have no sympathy for the Russian complaint as such but a substantial interest in how a panel characterises the relationship between a domestic carbon price, free allocation and a border charge.
Practical steps for affected buyers and sellers
Four actions are being taken across the trade now, and they generalise beyond nickel.
Buyers are mapping embedded carbon across their import book, category by category, to identify which flows are near a commercial threshold rather than comfortably above or below it. The flows that matter are not the ones already priced out but the ones where a modest move in the allowance price would change the decision.
Sellers with better-than-default performance are investing in verification. Where actual installation data can be assembled and verified to the required standard, the gap against a conservative default can be worth more than any realistic efficiency programme over the same period.
Both sides are rewriting contract terms. Agreements that allocate the certificate cost explicitly, and that specify who bears the risk of a default value being applied because data was not supplied in time, are replacing agreements that are silent on the point. Silence has tended to resolve against the importer, who is the party with the surrender obligation.
And both are extending due diligence upstream. Because semi-finished and finished goods carry the embedded carbon of the inputs used to make them, a fabricator’s exposure depends on the production route of a supplier it may never deal with directly. Supplier questionnaires that stop at the immediate counterparty understate the position.
Outlook
Three things will determine how this story develops over the coming year.
The first is the allowance price, which sets the magnitude of every charge in the system and which is driven by European climate policy rather than by trade considerations.
The second is the pace of verification. If a meaningful share of Indonesian capacity can substantiate intensities below the country default, some portion of the trade may become viable again at the margin. If it cannot, the current pattern hardens.
The third is the power transition in Indonesia’s industrial parks. Grid connections, captive renewable projects and gas substitution are all under discussion, and each would reduce the embedded figure materially. None will be completed quickly, and the commercial case for undertaking them weakens the longer the European market stays closed and Asian demand absorbs the output.
For European importers, the message from this week is that the mechanism is now doing what it was built to do, that its administrative parameters have been reaffirmed rather than loosened, and that the legal challenge to it will not arrive in time to be a planning assumption. Carbon intensity has become a trade barrier with a price attached, and the first large flow to meet it has been rerouted.