How Does The Middle East War Affect The Steel Industry? The Dual Test of Export Pressure And Cost Increase

How does the Middle East war affect the steel industry? The dual test of export pressure and cost increase

The Strait of Hormuz is filled with smoke of gunpowder, and the steel industry is seeking a balance between energy turbulence and export disruptions

Iran's Supreme Leader Khamenei was recently attacked and killed, and the United States and Israel launched a preventive military strike against Iran, escalating the geopolitical conflict in the Middle East. The Strait of Hormuz, the "energy throat" responsible for about 20% of global crude oil shipping trade, has been blocked, and the world's largest shipping companies have avoided the Persian Gulf. Dubai Ports International has suspended operations at its main port in Dubai, and MSC, the world's largest container shipping company, has also suspended all booking services for global shipments to the Middle East.

This sudden outbreak of war has rapidly heightened the global market's risk aversion, with international gold prices approaching the $5300 mark and the geopolitical premium of crude oil prices significantly rising. For the steel industry, which is closely related to energy costs, how will this war in the Middle East affect the domestic steel market?

1、 Conflict escalation: Energy market volatility, steel market indirectly under pressure

The Middle East has always been the global energy hub, and this conflict directly led to the closure of the Strait of Hormuz waterway, causing international crude oil and natural gas prices to rise in response. For the steel industry, the impact is first reflected on the cost side - steel is a typical high energy consuming industry, and rising oil prices not only bring pressure to adjust electricity prices, but also directly push up fuel costs in the steel smelting process.

In the composition of steel costs, although the impact of crude oil is not as direct as that of iron ore and coke, it is not completely unrelated. Referring to the experience of the Iran Israel conflict in June 2025, the main contract for coking coal increased by about 5% during the conflict period compared to before the outbreak. The expected cost increase drove the main contracts for hot coil and thread to rise by about 1.2% and 0.9% respectively.

Taiwan's Zhonggang experts pointed out that the turbulent situation in the Middle East will lead to increased risks in the Red Sea and Persian Gulf shipping routes, and the Baltic Dry Index (BDI) will rise. The import shipping costs of iron ore and coal will also increase accordingly.

The increase in freight rates directly drives up the landed costs of high-speed rail ore and coking coal. Although China's imported iron ore mainly comes from Australia and Brazil, with a low proportion imported from the Middle East, if global shipping routes are forced to change due to conflicts (such as detouring around the Cape of Good Hope), the overall pressure of rising shipping costs will eventually be transmitted to the steel production end.

3、 Domestic market: tug of war between weak reality and strong expectations

From the perspective of domestic fundamentals, the current steel market is in a typical stage of "weak reality" and "strong expectations" game.

Real demand remains weak. According to a survey by Zhuochuang Information, the current construction rate of downstream construction sites is only between 4% and 8%, and only 20% -40% of companies plan to start construction in early March. It is estimated that downstream construction sites will not return to relatively normal levels until mid March. At the same time, steel production is rapidly recovering.

According to the production plan of the steel mill, the expected production of construction steel in March is 20.5611 million tons, an increase of 96.79% compared to the previous month, and inventory continues to accumulate. The total social inventory has reached 8.5487 million tons, an increase of 2.028 million tons from before the holiday.

On the expectation level, it is relatively optimistic. An important conference will be held in early March, and the market has good expectations for macro policies, which provides short-term support for steel prices. Rumors of policies such as "anti involution" and energy consumption monitoring continue to stimulate market speculation enthusiasm. The "Shenzhen 2026 Major Project Plan" recently issued by Shenzhen has arranged a total of 832 major projects with a total investment of 3.2 trillion yuan, including 719 construction projects with an annual planned investment of 309.1 billion yuan, injecting confidence into the long-term demand for steel.

The tug of war between "weak reality" and "strong expectations" is reflected in a narrow range of price fluctuations. According to the monitoring of Lange Steel Network, black series products continued to fluctuate and adjust in the night trading last Friday, with the main thread and hot coil closing narrowly higher. Zhuochuang Information predicts that the price of rebar in March may first strengthen and then weaken, with a downward shift in the price center, with a support level of 3100 yuan/ton below and a pressure level of 3160 yuan/ton above.

4、 Differentiation and Transformation: The Unique Logic of Stainless Steel and Special Steel Grades

It is worth noting that there are significant differences in the impact logic of the Middle East conflict on different steel varieties. For stainless steel, the impact is more transmitted through nickel ore supply channels.

The recent sinking of a ship carrying 50000 tons of nickel ore has raised concerns in the market about shipping risks. At the same time, Indonesia continues to release signals of tightening nickel ore supply, planning to reduce nickel ore quota supply by 10% -15% in the future. If this policy is implemented, it will effectively alleviate the problem of oversupply in the global nickel market, nickel prices are expected to maintain an upward trend, and stainless steel prices will also receive cost support.

However, the current stainless steel market still faces significant supply-demand contradictions. From January to December 2025, the total import volume of nickel iron in China reached 11.149 million tons, a year-on-year increase of 24.2%. Among them, imports from Indonesia accounted for 97.5%, and the supply of raw materials was not tight. On the demand side, the total export volume of stainless steel in China will slightly decrease by 0.26% year-on-year in 2025, causing concerns in the market about overseas demand.

The Taiwan Economic Daily analyzed that the impact of the Middle East war on the steel industry is "a turning point in danger" - although facing fluctuations in energy and logistics costs in the short term, from the perspective of supply side contraction and reconstruction demand, it will expand steel demand. For major steel mills such as Zhonggang, Zhonghong, Yehui, and Ronggang, this may become an important support for stable profitability.

5、 Future outlook: Where is the steel market heading in the fog?

Overall, the escalation of the Middle East conflict has had a multi-level and differentiated impact on the domestic steel market

The short-term emotional impact is limited. The impact of the Middle East conflict on rebar is usually short-lived. In the early stages of the conflict, the market may experience brief price fluctuations due to panic. Once the market calms down, funds will quickly return to focusing on domestic supply and demand data.

Export pressure will continue to exist. Under the triple pressure of blocked shipping routes, rising transportation costs, and weakened local demand in the Middle East, it is difficult to be optimistic about China's steel exports in the short term. If export resources continue to flow back, it will further increase the supply and demand pressure on the domestic market.

Cost support is gradually strengthening but limited. The direct cost push effect of rising oil prices on rebar is very limited, and the impact transmitted through iron ore freight is also diluted layer by layer due to the dispersion of import sources. But if the conflict persists for a long time and global inflation expectations strengthen, it will ultimately be reflected in steel prices.

The true direction of the market may not be determined until mid to late March, when resumption of work is fully underway and inventory turning points appear. Prior to this, the steel market will continue to oscillate within the range of "macro expectations bottoming out and weak reality topping out".

For practitioners in the steel industry, in this period of increasing geopolitical risks, closely monitoring the evolution of the Middle East situation, using financial tools to hedge risks reasonably, and flexibly adjusting import and export strategies will be the key to overcoming the fog. As market analysts have said, "Don't chase after the rise and kill the fall, make a layout plan in advance.