What happened? Salzgitter just pre-released Q2 results with EBITDA coming well below expectations. The FY25 guidance is also cut by more than 20% with no demand recovery expected into H2. BNPP Exane View: The QoQ drop in EBITDA, even as EU margins surged in Q2, is puzzling. While weakness in Steel Processing may persist, the poor Q2 results could also be attributed to weaker volumes in Steel Production. Salzgitter''s shares have soared by 35% over the past month, only buoyed by expectations of higher defense EBITDA into 2026 (to be modest in our view). But it''s now time for a reality check. Not just for Salzgitter, but for the rest of our EU coverage as well. EU spot margins have shrunk with iron ore prices on the rise into Q3, leaving mills powerless on pricing as distributors import stocks ahead of CBAM. Demand is also lacklustre and vulnerable to looming US tariffs. While the 2026 outlook, with the Steel Action Plan and German infrastructure spending, is promising, near-term support for EU carbon and stainless steel players is very much limited. Given the equity rally YTD, we believe EU steelmakers are likely to face a challenging summer earnings season (especially relative to US peers). Reiterate Underperform. Key takeaways: . 2Q25: SZG expects 2Q25 EBITDA to reach EUR 38m, well below consensus of EUR 119m (BNPPe of EUR 142m), triggering the pre-release. Q2 group EBT of -EUR 57m also significantly missed consensus of EUR 14m. No segmental breakdown was provided but we note that Aurubis contribution (EBT) of EUR 24m surpassed BNPPe of EUR 12m. The miss in sales would also imply poor volume performance. . FY25: SZG cut its FY25 EBITDA guidance by -22% from EUR 350-550m to EUR 300-400m (versus cons. of ~EUR 500m). The FY25 EBT guidance is also downgraded from EUR -100-100m to EUR -100-0m (versus cons. of EUR 43m). At midpoint, the new guidance implies ~15% downside risk to Q3/Q4 consensus. . Market: ''We do not expect to see any notable...