Rising Carbon Costs And Market Overcapacity Will Crush Margins

Key Takeaways

• Incomplete green steel investments and regulatory pressures threaten future profitability and margins amidst rising carbon costs and stricter emissions rules.
  
• Reliance on legacy steel production, shrinking European demand, and global oversupply risk persistent margin and revenue decline unless Voestalpine innovates rapidly.
  
• Early leadership in green steel, specialized product focus, and disciplined operations ensure resilience and margin growth despite cyclical volatility and evolving industry demands.

Catalysts

Processes, develops, manufactures, and sells steel products in Austria, the European Union, and internationally.

• Voestalpine faces escalating carbon costs and rising capital expenditure requirements as the global drive for decarbonization and stricter emissions regulations intensifies, yet their current green steel investments remain only partially completed. This severely threatens future net margins and profitability if the company cannot accelerate or fully realize its hydrogen-based transformation ahead of tightening regulatory deadlines.
  
• The accelerating adoption of recycled and scrap-based steelmaking in developed markets will reduce demand for primary steel production, directly undermining Voestalpine's legacy business model. Over time, this puts substantial downward pressure on core revenue streams and constrains potential top-line growth.
  
• With core European markets stagnating and long-term decline in labor-intensive manufacturing, especially in Germany, Voestalpine's heavy reliance on these geographies exposes it to persistent weakness in demand, pressuring volume growth and compressing earnings resilience for the foreseeable future.
  
• Global overcapacity in steel and commoditization-particularly the rise of low-cost supply from China and India-will drive sustained price pressure and further margin erosion for Voestalpine, particularly if it struggles to differentiate or shift faster into higher-margin specialty products. This environment limits the ability to maintain or expand EBITDA and return on capital.
  
• Delayed returns from ongoing automation and digitalization projects, combined with aging production facilities and a high fixed cost base, risk leaving Voestalpine structurally less efficient than global peers. This persistent operational drag will threaten long-term cost competitiveness and suppress profitability despite sporadic restructuring efforts.

Voestalpine Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Voestalpine compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Voestalpine's revenue will decrease by 1.1% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from 1.0% today to 2.8% in 3 years time.
• The bearish analysts expect earnings to reach €434.0 million (and earnings per share of €2.5) by about July 2028, up from €153.5 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 10.7x on those 2028 earnings, down from 28.0x today. This future PE is lower than the current PE for the GB Metals and Mining industry at 23.4x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.06%, as per the Simply Wall St company report.

Voestalpine Future Earnings Per Share Growth

Risks

• Voestalpine is advancing large-scale investments in decarbonization through its Greentec steel project and electric arc furnace rollout, which are on time and on budget, positioning the company as an early mover in green steel and likely to improve pricing power and future margins in a global environment increasingly focused on low-carbon steel.
  
• The company is experiencing strong and stable demand in high-value markets such as railway infrastructure, aerospace, and high-bay warehouse systems, with long-term contracts and global expansion underpinning revenue stability and providing earnings resilience amidst cyclical downturns in other segments.
  
• Voestalpine's product mix is shifting toward specialized, engineered steel products for industries with high technological barriers, such as automotive lightweighting, energy, and advanced industrial applications, which supports improved net margins and limits exposure to commoditized, low-margin steel.
  
• Continued progress in operational restructuring and digitalization-including efficiency improvements, automation, supply chain optimization, and cost discipline-has resulted in strong working capital management and free cash flow generation, supporting further investments and strengthening the company's balance sheet.
  
• Despite cyclical market weakness, management guidance reflects a stable near
• and mid-term earnings outlook, with EBITDA expected to recover to between €1.4 and 1.55 billion, and both cash flow and net debt ratios showing no signs of strain, suggesting long-term financial strength and supporting the possibility of increasing returns to shareholders.

Valuation

• The assumed bearish price target for Voestalpine is €21.5, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Voestalpine's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of €36.0, and the most bearish reporting a price target of just €21.5.
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be €15.2 billion, earnings will come to €434.0 million, and it would be trading on a PE ratio of 10.7x, assuming you use a discount rate of 8.1%.
• Given the current share price of €25.08, the bearish analyst price target of €21.5 is 16.7% lower. Despite analysts expecting the underlying buisness to improve, they seem to believe the market's expectations are too high.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.