MEPS analysis: Middle East conflict raises inflation risks for steel prices

The escalating tensions in the Middle East could push steel prices higher, particularly in Europe, according to analysis by market research firm MEPS International.

The warning follows Iran’s closure of the Strait of Hormuz on February 28, disrupting a key maritime route that normally handles nearly 30 million tonnes of dry bulk trade per month and around 20% of global oil and LNG shipments.

Kaye Ayub, Head of Price Analysis and Forecasts at MEPS, said the disruption could raise steel prices through higher energy costs, rising freight rates and tighter import supply.

“The Iran conflict presents clear inflationary risks for steel prices, particularly in Europe,” she said.

The Strait of Hormuz has become a focal point of the escalating Middle East conflict following a joint US-Israeli military offensive in Iran. Over the weekend, more than 150 vessels were reported stranded in the strait, with several ships damaged.

Shipping disruptions are already affecting global logistics. Maritime insurance premiums have surged by 50% to more than 100% in recent days, while war-risk cover for some routes has risen sharply or been withdrawn entirely. As a result, some vessels are diverting via the Cape of Good Hope, extending the Asia-Europe route by roughly 3,500–4,000 miles and adding 10 to 14 days to transit times.

Freight rates are rising as a result, while higher oil prices are pushing up bunker fuel costs. Brent crude has increased sharply since the escalation began, reflecting fears of supply disruption. Higher fuel and insurance costs will directly increase transport costs for bulk commodities such as iron ore and coking coal.

Energy markets react more strongly

So far, steelmaking raw material prices have shown limited reaction. Iron ore prices remain close to $100 per tonne CFR China, while coking coal prices have also remained relatively stable. However, rising freight costs could still increase delivered raw material prices for steelmakers.

Energy markets have reacted more strongly. Dutch TTF gas prices rose by about 40% between Friday and Monday after reports that Qatar had halted LNG production at its largest export facility. According to MEPS, TTF prices have climbed roughly 80% since the start of the conflict and are expected to remain volatile.

Higher LNG shipping costs from the United States could further increase European gas import prices.

MEPS notes that the last comparable shock occurred after the outbreak of the Russia-Ukraine war, when Dutch TTF gas prices surged to around €200/MWh, pushing European rebar prices above €1,200 per tonne. However, later price spikes did not prevent a sharp correction in steel prices as demand weakened and steelmakers reduced production.

European market most exposed

The current situation differs in several respects. US natural gas prices have not increased in line with European benchmarks, limiting cost pressure on steelmakers in the United States. At the same time, the strengthening US dollar is providing additional support for US producers.

In Europe, however, the impact could be more pronounced. Higher gas and electricity prices increase production costs for EAF-based steelmakers, while rising household energy bills and inflation could weaken downstream demand from construction and manufacturing.

MEPS research respondents also reported that ArcelorMittal Europe had temporarily withdrawn offers for long products this week. A company spokesperson confirmed to MEPS that offers had been paused “in order to understand the evolution of the energy cost”.

Trade flows may also be affected. Higher freight rates and longer shipping routes will raise steel import prices and extend delivery lead times. Some shipments scheduled for the second quarter could arrive after July 1, when revised EU safeguard measures take effect, potentially exposing importers to higher duties if quotas are exceeded.

Ayub said that while the current disruption presents clear upside risks for steel prices, the sustainability of any increase will depend on demand.

“As seen in 2022, energy-driven price spikes can be short-lived if high costs suppress consumption,” she said. “For now, the market faces renewed volatility, higher costs and increased uncertainty.”

Source: MEPS, Photo. Fotolia