West Asia crisis causes demand pain for steelmakers

The ongoing blockage of the Strait of Hormuz is causing global freight, fuel, and insurance costs to soar, dampening market sentiment and hampering trade with West Asian customers.

The conflict in the West Asia is driving up ferrous metal prices and adding inflationary pressure at a time when global demand has yet to recover from the effects of the COVID pandemic. Metal prices have largely been supported by government policies, including import tariffs and safeguard duties. In Europe, the start of the Carbon Border Adjustment Mechanism this year has made it more expensive for steel exporters to sell to the continent. Demand from key industry sectors such as house building, car making, infrastructure, and manufacturing remains subdued.  India has been a standout performer globally due to a strong domestic economy. Compared to its Asian neighbours, India is less reliant on exports, but it is not immune to the adverse impact of the current crisis.

 

 

The ongoing blockage of the Strait of Hormuz is causing global freight, fuel, and insurance costs to soar, dampening market sentiment and hampering trade with Middle Eastern customers. 

 

Indian steel prices hit their highest level for more than two years in March, helping to expand steelmaker profit margins as domestic steel prices outpaced rising input costs. However, if the conflict continues, we expect to see margins contract. LNG supply disruptions are already affecting gas-based and secondary Indian steel producers, forcing them to cut production as their margins come under pressure. 

 

The companies that buy steel are struggling to pass on the higher costs to their client base. The S&P Global India manufacturing PMI found that uncertainty regarding the west Asia conflict resulted in lower orders and output levels in March, while cost inflation hit a 47-month high.  Manufacturers, just like steel producers, are typically reluctant to lose market share and will therefore absorb a certain amount of margin pain. But there comes a point where this approach becomes unviable, and companies simply stop buying – or producing. This is starting to happen.  As buyers sit on the sidelines and monitor market conditions, steel prices invariably start to slide. At the time of writing, steel prices were starting to come down from a recent peak of 60,000 rupees per metric ton for hot-rolled coil (the main steel product used for manufacturing). 

 

India has ambitions to significantly expand its steel capacity, and its crude steel production grew by almost 11% in the 2025-26 fiscal year. Since the country reimposed steel safeguard duties at the end of last year, domestic producers have been protected from import competition. In fact, India became a net exporter of finished steel again in the fiscal year just ended, after being a net importer for the two preceding years.

 

Ideally, industrial production – including steel output – will grow in line with a country’s economic development rather than resulting in overcapacity. The latter scenario means that operating rates need to be kept lower in line with softer domestic demand, which is sub-optimal for producers with fixed costs. Or the surplus needs to be exported. In the case of steel, India’s capacity growth plans form the backbone of the country’s ‘Make in India’ policy. But ramping up output is not always a smooth process, and there are times when capacity outstrips domestic demand.

 

The challenge when turning to export markets is the huge competitive presence of China. Last year, China exported around 135 million tons of steel to more than 200 countries, of which some 14 million tons went to the West Asia via the Strait of Hormuz. To put this into perspective, India’s total crude steel production in 2025 was 164 million mt.

 

Not only do countries need to compete with the large volume of Chinese steel in the export market, but a plethora of trade protection measures, such as antidumping duties, have been implemented in many countries over the past two years. Every country wants to enable its domestic producers to thrive – or even survive in some cases. As trade barriers are put up, exporters need to identify new markets, and competition intensifies. Asia is often a magnet for surplus steel, and the West Asia is currently out of bounds.

 

We expect China to export at least 120 million tons of steel in 2026. The enormous amount of property and infrastructure development in China over the past two decades has naturally slowed. The country has entered a less steel-intensive phase, and S&P Global Energy expects the country’s steel consumption to fall 1.7 per cent in 2026. 

 

Manufacturing has become the most important sector for steel demand in China, but it is also heavily reliant on exports. Geopolitical tensions and trade tariffs were already creating an uncertain environment for investors, businesses, and consumers. The West Asia conflict is only compounding this scenario and pushing back the timeline for any meaningful economic recovery from the pandemic and the subsequent period of high inflation and interest rates that followed.

 

While there will always be a certain level of exports and trade with business partners, the health of sectors such as steel relies mainly on domestic demand and consumption. Cost pressures resulting from the current crisis are a setback for India’s economic and ferrous aspirations. 

 

(Disclaimer: This article is by Paul Bartholomew, associate-director, Ferrous Metals Research, S&P Global Energy. Views expressed are his own.)