Market Disconnect: Prices vs. Demand

The global steel market shows a sharp disconnect: weak overall demand is struggling against a combination of supply issues and speculation. While demand signals caution, geopolitical events and rising input costs are pushing prices higher, leading to a volatile market.

Prices Jump Despite Weak Demand

Global steel demand is expected to grow by only 0.3% in 2026, largely due to a projected 1.5% contraction in China. This weak demand outlook stands in sharp contrast to significant price increases for major steel products in early 2026. China's export hot-rolled coil (HRC) prices rose 2% month-on-month in March, while domestic HRC prices jumped 6% and rebar climbed 2%. This rally is linked to steady orders, lower imports, and traders buying strategically to protect against geopolitical risks, especially the US-Iran conflict. The conflict is increasing shipping costs and commodity price swings, directly boosting physical steel prices. Aluminium has also performed strongly, with LME aluminium up 10% in March to over $3,600 per tonne.

India's Growth and Rising Costs Boost Prices

India is a key growth driver, with Centrum forecasting a strong 7.4% demand increase in 2026 and 9.2% in 2027, far exceeding global rates. This domestic strength is combined with rising input costs, which are supporting and driving steel prices higher. Iron ore prices have recovered, with Australian ore up 6% month-on-month in March, helped by higher fuel costs for mining. In India, NMDC raised prices for lump and fines in April. Coking coal prices remain high year-on-year, despite a recent dip, and non-coking coal prices have surged due to shipping and supply issues. The World Steel Association's cautious 2026 forecast reflects wider economic worries, such as ongoing inflation and the delayed effects of higher interest rates on global construction and manufacturing. Yet, current prices seem disconnected from these demand signals, indicating a speculative premium fueled by supply chain worries and raw material costs.

Risks Emerge as Geopolitics Drive Prices

However, analysts caution that the current steel price surge carries significant risks. The rally appears driven more by temporary supply shocks and geopolitical premiums than by solid demand. While India's demand outlook is positive, its growth cannot compensate for the projected contraction in China, the world's largest steel consumer. Relying on geopolitical tensions for price support is unstable, as any de-escalation could lead to a sharp price drop. High input costs for iron ore and coal are also contributing to higher steel prices but are themselves vulnerable to changes in global energy markets and supply chains. The strength in aluminium masks weakness in other base metals like copper and zinc, suggesting selective market strength rather than broad commodity health. Historical patterns show that price spikes from supply shocks and geopolitical events are often short-lived and prone to sharp reversals once supply chains stabilize or tensions ease. The market may be overestimating the impact of short-term disruptions, creating a rally fueled by fear and higher costs instead of actual demand growth. The World Steel Association's forecast of just 0.3% growth for 2026 further highlights this disconnect.

Outlook: Volatility Expected

Analysts expect continued volatility in the steel market through 2026. This will depend on geopolitical events, changing freight costs, and the ongoing impact of raw material prices on production. While India is set to remain a strong demand outlier, a global recovery will require broader economic stability and the resolution of supply chain issues.