``` A neglected supply shock: Up to 70% of Iran’s steel production capacity may disappear ```

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While the global metal market remains focused on aluminum production in the Gulf region, a disruptive shock to the global steel supply and demand structure is being systematically underestimated.

According to CCTV News, Israeli Prime Minister Netanyahu stated on April 4 local time that the Israeli military struck Iran’s steel and petrochemical factories that day, destroying 70% of Iran’s steel production capacity.

Iran’s steel output in 2025 is about 32 million tons, accounting for roughly 1.8% of global steel production and about 3.8% of global steel production outside China. Its scale is comparable to Germany (34 million tons), about 40% of the US (82 million tons), and close to a quarter of Europe’s total output (134 million tons)—this is far from a marginal player. If 70% of its production capacity has been destroyed, more than 20 million tons of annual capacity will evaporate from the market.

Citi warns that this is a structurally underestimated supply gap by the market, and the global steel supply-demand balance will face substantial restructuring.

Core Pillar of the Middle East Steel Landscape

The rise of Iran’s steel industry is highly strategic.

According to the World Steel Association, Iran’s annual steel output grew from 14.4 million tons in 2013 to 32 million tons in 2025, doubling in 13 years, with a compound annual growth rate of 6.3%, making it the world’s 10th largest steel producer. 30% of Iran’s steel output is exported, and 70% serves domestic demand, forming a supply pattern that balances both domestic and international markets.

The core impact of this strike is: If domestic production capacity is greatly reduced, the portion originally for export will prioritize domestic needs, meaning the net export volume of 9 million tons will almost certainly exit global trade rapidly, with no short-term substitute.

High Difficulty in Filling the Supply Gap

Citi stated that Iran’s steel is highly dependent on direct reduced iron (DRI) gas-based processes, which are completely different from the mainstream global blast furnace ironmaking method, making substitution much more difficult.

In 2024, Iran’s DRI output reached 34.2 million tons, up 2% year-on-year, making it the world’s second largest DRI producer, accounting for about 69% of the Persian Gulf region’s DRI/HBI total output. DRI globally only accounts for about 7.5% of crude steel raw materials; however, in Iran, this proportion exceeds 80%—steel production in Iran is almost entirely driven by natural gas reduction rather than coke smelting.

From a macro perspective, Persian Gulf DRI production has expanded from 13.1 million tons in 2007 to 49.8 million tons in 2024, accounting for more than 35% of global DRI/HBI output (about 19% in 2007). Iran is the absolute core of this growth.

Once this industry chain, built on Iran’s abundant natural gas reserves, is broken, other countries would have to fill the gap with blast furnace capacity, shifting from natural gas to coking coal—the raw material structure would fundamentally change.

Coking Coal Market: Overlooked Chain Reaction and Bullish Logic

Citi estimates that if Iran’s 34 million tons of gas-based DRI output is fully replaced by global blast furnace capacity, it would generate an additional coking coal demand of about 20 million tons, equivalent to 8–10% of the global seaborne coking coal market.

Even just substituting the exported portion (about 9–11 million tons of exported steel), would bring an extra demand for 6–7 million tons of coking coal.

Of course, Citi’s research also notes countervailing factors: Iran’s domestic steel demand may shrink in the short term due to the current situation, so not all DRI capacity needs replacement.

But even if only the exported portion is replaced, the potential additional demand of 6–7 million tons for coking coal is enough to create meaningful price drivers for the relatively limited global seaborne coking coal market.

Focus on Three Main Areas

Citi advises investors to focus on three main trading lines:

First, upward pressure on global steel prices:

The rapid exit of 9 million tons of net export will create a clear supply gap in Iran’s traditional export destinations (Middle East, Southeast Asia, etc.), benefiting spot and futures prices for steel in these regions.

Second, price revaluation for coking coal-related targets:

Whether the replacement is full or partial, activating global blast furnace capacity means significantly increased marginal demand for seaborne coking coal. Relevant coking coal producers and traders face positive catalysts.

Third, structural challenges in filling the supply gap:

Iran’s gas-based DRI capacity cannot be matched in the short term, and mobilizing traditional blast furnace capacity takes time and capital. This means supply-demand imbalance may last several quarters, or longer, rather than being a momentary, impulsive shock.

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The above highlights are from Chasing Wind Trading Desk.

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