An Overlooked Supply Shock: 70% of Iran's Steel Production Capacity May Disappear

While the global metals market’s attention is still fixed on aluminum production capacity in the Gulf region, a disruptive shock to the global steel supply-and-demand landscape is being systematically underestimated.

According to CCTV News, on April 4 local time, Israeli Prime Minister Benjamin Netanyahu said that the Israeli military carried out strikes that day on Iran’s steel plants and petrochemical plants and had destroyed 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, about 3.8% of global steel production outside China. Its scale is comparable to Germany (34 million tons)—around 40% of the output of the United States (82 million tons), and a quarter of the total output of all of Europe (134 million tons). This is absolutely not a marginal player. If 70% of capacity has indeed been destroyed, more than 20 million tons of annual capacity will vanish from the market.

Citigroup warned that this is a structural supply gap that the market has severely underestimated, and that the global steel supply-and-demand balance will face a fundamental reshaping.

Core pillars of the Middle East steel map

The rise of Iran’s steel industry has major strategic significance.

According to data from the World Steel Association, Iran’s annual steel output grew from 14.4 million tons in 2013 to 32 million tons in 2025. Over 13 years, it doubled; the compound annual growth rate reached 6.3%. As a result, Iran has moved into the top 10 global steel producers. Thirty percent of Iran’s steel output is used for exports, while 70% meets domestic demand, forming a supply structure with equal weight on both external and internal markets.

The core impact of this strike lies in: If domestic capacity is significantly reduced, the portion originally intended for exports will be prioritized to secure domestic demand first. This means that the 9 million tons of net exports would almost inevitably and quickly exit global trade flows, with no near-term substitutes.

Filling the supply gap is extremely difficult

Citigroup said that Iran’s steel production is highly dependent on gas-based direct reduced iron (DRI) processes, which are completely different from the blast furnace ironmaking routes that dominate globally, and this also significantly increases the difficulty of substitution.

In 2024, Iran’s DRI production reached 34.2 million tons, up 2% year over year. It is the world’s second-largest DRI producer, accounting for about 69% of the total DRI/HBI output in the Persian Gulf region. DRI accounts for only about 7.5% of the world’s crude steel raw material supply. However in Iran, this proportion exceeds 80%—Iran’s steel production is driven almost entirely by natural-gas-based reduction of iron ore, rather than by coke-based smelting.

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

Once this industrial chain, built on the country’s abundant natural gas reserves, is broken, if other countries want to fill the gap with blast furnace capacity—from natural gas to coking coal—the raw-material structure will undergo a fundamental change.

Coking coal market: overlooked knock-on impacts and the long logic

Citigroup estimates that if Iran’s 34 million tons of gas-based DRI production is fully replaced by blast furnace capacity in other regions, it would additionally generate about 20 million tons of coking coal demand, equivalent to 8% to 10% of the global seaborne coking coal market size.

Even if only the portion corresponding to replacing exports (the coking coal needed to support about 9 million to 11 million tons of exported steel), it would still bring an additional demand of roughly 6 million to 7 million tons of coking coal.

Of course, Citigroup research also points out offsetting factors: under the current situation, Iran’s domestic steel demand may shrink in the short term, so it may not need to replace all DRI capacity.

But even when calculating only the export-related replacement, for the global seaborne coking coal market—which is relatively limited in scale—an additional potential coking coal demand of 6 million to 7 million tons is already enough to form a meaningful price-driving force.

Focus on three key threads

Citigroup advises investors to focus on three trading main lines:

First, upward pressure on global steel prices:

The rapid exit of the 9 million tons of net export volume will create a clear supply gap in Iran’s traditional export destinations (the Middle East, Southeast Asia, and other regions), which is favorable for spot and futures prices of steel in the related regions.

Second, a repricing of price levels for coking coal-related assets:

Whether it is full replacement or partial replacement, the activation of global blast furnace capacity implies a significant marginal increase in 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 replicated in equal quantities in the short term, and mobilizing traditional blast furnace capacity requires time and capital. This means the supply-and-demand imbalance may persist for several quarters or even longer, not a short-lived, one-off pulse shock.