Recent events are already disrupting steel exports from China to the region
The global steel market is bracing for major turmoil following the escalation in the Middle East and the subsequent threat to shipping through the Strait of Hormuz.
In particular, this is disrupting steel exports from China to the region, Reuters reports.
Some Chinese steel exporters have stopped making offers to customers in the Middle East amid obstacles to shipping through the Strait of Hormuz, analysts and two traders told the agency. Freight rates are skyrocketing and insurers are canceling coverage.
The Strait of Hormuz is the main route for steel exports from China to the Persian Gulf. The region has become China’s second-largest market, accounting for about 16% of the country’s foreign steel exports last year amid trade barriers.
Shipping disruptions have led some Chinese steelmakers to stop offering new cargoes to the region, as ships to markets near the Persian Gulf are currently unavailable for loading, according to steel traders and reports published by four Chinese consulting companies.
The shift to the Middle East has been partly responsible for the resilience of Chinese steel exports over the past three years. In the short term, shipments of steel products from China to the Middle East are likely to decline sharply, putting pressure on domestic supply and lowering steel prices, according to analysts at Shanghai Metals Market.
The escalation of the conflict is expected to trigger a reduction in steel supplies from the Middle East, disrupt logistics, and increase freight rates, regional transit insurance premiums, and production costs, Argus Media notes.
Among other things, Iran’s potential absence from the market will affect the supply of semi-finished steel products. In 2024, Iranian exports of billets and slabs averaged approximately 250,000 tons per month.
In addition, in recent months, the region has gained prominence in the global steel landscape due to capacity expansion in the Gulf Cooperation Council (GCC) countries, the relative absence of regional import restrictions, and exemption from key trade measures such as EU safeguard measures. In particular, it has become a major market not only for Chinese but also for other Asian suppliers.
Traders from GCC countries indicate that the closure of the Strait of Hormuz could lead to force majeure claims for already booked cargoes. Several buyers from the UAE have stated that shipments scheduled for this week have been suspended. Others have reported that new steel deals are not being concluded as suppliers reassess the risks.
These disruptions also threaten the nascent trade flow to the EU. Since 2025, Saudi hot-rolled coil (HRC) and hot-dip galvanized coil (HDG) from the UAE have been increasingly entering the European market, taking advantage of exemptions from the bloc’s safeguard mechanisms.
In the second half of 2025, approximately 165,000 tons of Saudi hot-rolled coil were imported into the EU, while the UAE supplied approximately 130,000 tons of hot-dip galvanized coil to the bloc during the same period. The last batches of material not subject to protective measures from the GCC countries are expected to arrive in the first half of 2026, but these deliveries are currently under threat.
Some traders are also concerned about whether further escalation could affect the transport of materials across the Red Sea.
BigMint notes that prices in the European Union may rise not only for steel, but also for direct reduced iron. Gas-based DRI producers will also face consequences. Natural gas accounts for approximately 60-70% of costs at such enterprises, so a sustained increase in LNG and regional gas prices will directly lead to higher production costs.
European DRI producers, in turn, will face further margin compression if liquefied natural gas supplies remain constrained. Middle Eastern producers, despite their internal advantages, may experience increased opportunity costs or volatility if regional energy infrastructure remains disrupted.
Freight costs and insurance revaluation also affect the flow of ferrous scrap and manganese ore to India. Higher logistics costs will increase freight prices, even if physical supplies remain available.
It should be noted that China increased its steel exports by 7.5% y/y in 2025 to a record 119.02 million tons. This helped offset the slowdown in domestic demand.
Source:GMK Center
