While global metal markets remain focused on aluminum production capacity in the Gulf region, a potentially disruptive shock to worldwide steel supply and demand is being systematically underestimated. According to a report, Israeli Prime Minister Benjamin Netanyahu stated on April 4 that the Israeli military had struck Iranian steel and petrochemical plants, destroying approximately 70% of Iran's steel production capacity.
Iran's steel output for 2025 is estimated at around 32 million tons, accounting for roughly 1.8% of global production and about 3.8% of the world's steel output excluding China. This volume is comparable to Germany's production (34 million tons), equating to about 40% of the United States' output (82 million tons) and nearly a quarter of Europe's total production (134 million tons)—far from a marginal player. If 70% of its capacity is indeed destroyed, over 20 million tons of annual production would be effectively removed from the market.
Analysts warn this represents a structural supply disruption that is severely underestimated by the market, likely leading to a substantive recalibration of the global steel supply-demand balance.
A Core Pillar of the Middle Eastern Steel Landscape
The rise of Iran's steel industry holds significant strategic importance. Data shows that Iran's annual steel production grew from 14.4 million tons in 2013 to 32 million tons in 2025, doubling over 13 years with a compound annual growth rate of 6.3%, making it the world's tenth-largest steel producer. Iran allocates 30% of its steel production for export, with the remaining 70% meeting domestic demand, creating a dual-focused supply structure for both internal and external markets.
The core impact of these strikes is that if domestic capacity is significantly reduced, the portion of production previously earmarked for export would be prioritized for domestic needs. This implies that nearly 9 million tons of net exports would almost certainly and rapidly exit global trade flows, with no short-term substitutes available.
High Difficulty in Filling the Supply Gap
Iran's steel production relies heavily on gas-based Direct Reduced Iron (DRI) processes, which differs significantly from the mainstream blast furnace route used globally, thereby substantially increasing the difficulty of substitution. In 2024, Iran's DRI production reached 34.2 million tons, a 2% year-on-year increase, making it the world's second-largest DRI producer and accounting for about 69% of total DRI/HBI production in the Persian Gulf region. Globally, DRI constitutes only about 7.5% of crude steel raw materials, but in Iran, this proportion exceeds 80%—meaning Iran's steel production is almost entirely driven by reducing iron ore using natural gas, rather than coke-based smelting.
From a broader perspective, DRI production in the Persian Gulf region has expanded from 13.1 million tons in 2007 to 49.8 million tons in 2024, now representing over 35% of global DRI/HBI production (up from about 19% in 2007). Iran has been the absolute core of this growth. If this supply chain, built upon the country's abundant natural gas reserves, is disrupted, replacing it with blast furnace capacity from other countries would entail a fundamental shift in the raw material structure, from natural gas to coking coal.
Coking Coal Market: Overlooked Ripple Effects and a Bullish Thesis
Analysis suggests that if Iran's 34 million tons of gas-based DRI production were fully replaced by blast furnace capacity elsewhere in the world, it would generate additional demand for approximately 20 million tons of coking coal, equivalent to 8% to 10% of the global seaborne coking coal market. Even replacing just the volume corresponding to lost exports (the steel needed for roughly 9 to 11 million tons of exported steel) would create additional demand for about 6 to 7 million tons of coking coal.
Research also notes a potential mitigating factor: domestic steel demand in Iran may contract in the short term due to the current situation, potentially reducing the need for a full replacement of all lost DRI capacity. However, even calculating based solely on replacing export volumes, the potential additional demand of 6 to 7 million tons for coking coal would be substantial enough to exert meaningful upward pressure on prices within the relatively finite global seaborne coking coal market.
Three Key Investment Themes to Monitor
Analysts recommend investors focus on three primary investment themes:
First, upward pressure on global steel prices: The rapid withdrawal of 9 million tons of net exports is expected to create clear supply gaps in Iran's traditional export destinations (such as the Middle East and Southeast Asia), potentially benefiting spot and futures steel prices in those regions.
Second, price revaluation of coking coal-linked assets: Whether replacement is full or partial, the activation of global blast furnace capacity implies a significant marginal increase in demand for seaborne coking coal, presenting a positive catalyst for related coking coal producers and traders.
Third, structural challenges in filling the supply gap: Iran's gas-based DRI capacity cannot be replicated elsewhere in the short term, while mobilizing traditional blast furnace capacity requires time and capital investment. This suggests the supply-demand imbalance could persist for several quarters or longer, rather than being a short-lived, transient shock.
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