Middle East conflict tests global steel demand outlook, says MEPS analysis

The ongoing Middle East conflict is emerging as a major stress factor for the global steel market, putting pressure on an already fragile demand recovery in 2026, according to an analysis by MEPS International.

Market participants across Europe, Asia and North America report rising cost pressures, particularly linked to energy, transport and logistics. While higher freight rates are a key concern in North America, steelmakers in Europe and Asia are primarily affected by escalating energy costs.

Costs and trade barriers reshape market dynamics

In addition to higher input costs, elevated shipping rates and longer delivery times are disrupting trade flows between Asia and Europe. These challenges come ahead of tighter trade measures in the EU and UK, including reduced tariff-rate quotas and a 50% tariff on out-of-quota imports from July.

Together, these factors are limiting export opportunities for Asian producers while increasing price pressure across global markets.

Demand growth expected

Despite the difficult environment, the World Steel Association (worldsteel) still expects global steel demand to return to growth in 2026. However, its latest Short Range Outlook revises the growth forecast down to 0.3%, compared with 1.3% projected previously. Total demand is expected to reach around 1.72 billion tonnes.

A stronger recovery is anticipated for 2027, with demand growth forecast at 2.2%. These projections assume that the Middle East conflict will ease by mid-year.

Diverging regional trends

Growth prospects vary significantly by region. Demand in developing economies excluding China is expected to slow to 2.5% in 2026, reflecting a sharp contraction in the Middle East.

China’s domestic demand decline is expected to moderate, helping to ease concerns over global overcapacity. At the same time, India remains the key growth driver, with demand forecast to rise by 7.4% in 2026 and over 9% in 2027.

In developed markets, demand is expected to recover modestly. The US market is forecast to grow by 1.7% in 2026, while the EU and UK could see growth of 1.3%, supported by infrastructure and defence spending.

Inflation risks weigh on outlook

Rising steel prices reflect higher production costs and stricter trade measures. According to MEPS data, hot rolled coil prices have increased by more than 12% year-to-date in Europe and the US.

However, many market participants remain cautious. Higher energy and fuel costs are expected to fuel inflation, potentially delaying interest rate cuts and limiting investment.

The International Monetary Fund (IMF) has already revised its global GDP growth forecast for 2026 down to 3.1%, while raising its inflation outlook to 4.4%. In a more severe conflict scenario, growth could slow to 2.0% with inflation rising to 6%.

Uncertain path ahead

While a modest recovery in steel demand remains possible, the outlook is highly dependent on geopolitical developments. Prolonged conflict and sustained cost pressures could significantly delay or weaken the expected rebound in global steel markets.

Source: MEPS, Photo: Fotolia