Steelmakers in Europe are counting on stronger protective measures in the fight against cheap imports of steel, especially those from China and Russia, in the latest sign of an escalating trade spat.

This month, the European Commission said it would investigate imposing anti-dumping measures on cold rolled flat steel products from Russia and China, that is seen as a welcome boost for its domestic steelmakers, at least in the short term.

Complaints from Europe’s steel industry reflect a rising tide of protectionism against the backdrop of slowing global economies and the industry’s failure to cut production and therefore stem a growing supply glut.

Europe has already introduced a number of other anti-dumping measures on various steel products over the past year, and the latest move represents a ratcheting up of the pressure on cheap imports that follows US actions.

“It appears there is a very different tone toward steel imports coming from the European Commission right now,” says Michael Shillaker, analyst at Credit Suisse.

The commission’s measure will offer relief for European steel companies, which are being forced to compete with lower prices from Chinese and Russian exports.

Weak domestic demand and excess capacity in China pushed the country’s exports up 50 per cent to a record 93.8m tonnes last year, while a much lower rouble has made Russia’s steelmakers far more competitive. While a weakening euro has weighed on import demand, it is still attractive pricing for China’s steelmakers.

For example, although differentials have come down, at €415 a tonne, domestic hot-rolled coil in Europe was at a €53 premium compared to export prices from China in February, according to data from the Steel Index.

Rising protectionism will mean the steel markets will become more regionalised and driven by local supply and demand balances, say analysts. “You have less material from imports which will mean a more stable steel market,” says Seth Rosenfeld, analyst at Jefferies.

Renewed EU action is seen helping companies such as ArcelorMittal, the world’s largest steelmaker, and this month Bank of America Merrill Lynch upgraded the stock to a “buy” rating, on improving margins and benefits from trade protection.

Earlier this month the EU imposed anti-dumping duties on certain types of electrical steel from China, Japan, Russia, South Korea and the US. That came after the EU said it would impose anti-dumping duties on cold-rolled stainless steel from China and Taiwan in March.

Analysts say that marks a change of tack by Europe, which has been less aggressive in filing trade actions compared with the US.

Over the past seven years, the commission implemented trade barriers for steel in 14 cases, whereas the US implemented trade barriers in 43 cases, according to Jefferies. US companies such as US Steel are vocal in calling for further action.

Beyond such a short-term boost, analysts say what is really needed is a global cut in overcapacity, including by steelmakers in Europe. Only about 5 per cent of Europe’s capacity has been cut since the financial crisis, almost entirely by ArcelorMittal, according to Mr Rosenfeld.

Weakening global demand has led to lower margins and significant excess steel plants in Europe, with an estimated 80 per cent of capacity used last year. But companies are reluctant to take on the costs of closing plants and losing market share and governments have also been reluctant to let steelmakers cut production and eliminate jobs in an economy barely expanding.

“There is significant overcapacity in Europe as in many other places,” according to John Kovacs, an analyst at consultancy CRU. “The steel industry has traditionally been the first to be protected by governments.”

The problem for Europe is also not just about China.

It is likely China’s steel exports will still need a place to land. While the country is targeting a reduction of 80m tonnes of overcapacity by the end of 2017, that is unlikely to be enough given the state of domestic steel demand, which fell for the first time since the 1990s last year.

“China is caught with all this capacity, there’s always an incentive to keep on producing and offload the material rather than cut production and lose out to a competitor,” says Jeremy Platt, analyst at steel consultancy MEPS. “Because there’s so much excess capacity in China it’s going to take a long time to get to a normal level.”

The tariffs will probably lead to a further widening of the price difference between Chinese and European steel products. As China looks to export elsewhere, prices in those destinations will also fall.

This will mean that while Chinese imports to Europe may decline, steel from other countries could rise. When the US set anti-dumping duties on steel tubes from China in 2010, tube imports from Korea and Vietnam grew substantially “even though the latter hosted hardly any manufacturing capacity,” according to HSBC analyst Thorsten Zimmermann.

“Defending against global steel overcapacity is like a whack-a-mole game,” says Mr Rosenfeld. “You hammer it down in one place, and then it pops up in another. In one sense protectionist policy only serves to redirect steel imports from one region to another.”