Global steel overcapacity contributes to trade fragmentation
Faced with growing global steel production overcapacity – estimated at around 640 million metric tons – amidst subdued demand, countries are stepping up measures to protect their steel industries. China alone accounts for nearly half of this excess capacity (305 million metric tons) but could increase it by an amount equivalent to Italy’s capacity – Italy being the second-largest producer in the European Union (EU) – by 2028. The net effect, however, will depend on the closures actually carried out to offset this and the nature of the capacity taken offline, as past experience has shown that some of the dismantled capacity was already partially or completely inactive. While domestic demand continues to be hampered by the ongoing crisis in the construction sector, Chinese exports have grown by more than 150% between 2020 and 2025, particularly to Southeast Asia, Africa, and the Middle East.
This trend is expected to continue, as the anticipated rebound in global demand starting in 2026 would not be enough to absorb excess production capacity, keeping the overall capacity utilization rate below 75%. As a result, countries are stepping up targeted measures (anti-dumping duties), primarily against China, but are also increasingly deploying broader measures to better deter circumvention strategies, combining tariff and non-tariff barriers, such as the European carbon market mechanism.
As a result, the EU and the United States – the world’s two largest steel importers – have recently tightened their trade measures, at the risk of disrupting regional value chains. Washington has raised tariffs on steel from 25% to 50%, while Brussels has just cut its duty-free import quota (18.3 million metric tons) in half, effective July 2026, while also raising the tariff applied to imports exceeding that quota to 50%. As the European decision is still too recent, it is not yet reflected in the statistics. Conversely, the United States has recorded a sharp decline in imports (approximately -40% YoY in Q1 2026), while production rose by 7.5% over the same period. Canada, India, and the United Kingdom have also tightened their tariff measures.
The closure of European and North American markets is accelerating the regionalization of trade, with China redirecting its excess production to the economies of ASEAN and, to a lesser extent, the Middle East, Africa, and South America. While this trend primarily affects China, it also penalizes certain peripheral partners, such as the United Kingdom and Turkey, which export 76% and 42% of their steel to the EU, respectively, but have just lost 43% and 27% of their quotas. Fragmentation contributes to diverging steel prices across markets. While prices have risen in Europe and, even more so, in the United States since 2025, they remain relatively depressed in the rest of the world. These disparities are likely to persist, judging by the prices anticipated on the futures markets.
The growing demand for minerals used in energy transition and digital technologies is expected to remain strong. The electrification of cars, the expansion of renewable energy (wind, solar, and energy storage), and the proliferation of data centers all represent avenues for growth in demand for critical minerals (copper, aluminum, cobalt, etc.).
According to the International Energy Agency (IEA), depending on the scenarios considered for greenhouse gas (GHG) emissions, demand for strategic minerals will increase two- to threefold by 2030, driven primarily by demand related to energy transition technologies. Global demand for copper is expected to grow by 40% by the end of the decade. The same is true for lithium, as a threefold increase in demand would be driven solely by applications related to the energy transition.
At present, China has a clear advantage in securing its supplies, particularly of refined metals. The country is the leading producer of major industrial metals, as well as critical elements such as rare earths. For example, China accounts for nearly two-thirds of global production of refined lithium, half of refined copper, and more than 80% of rare earths.
The last two decades have seen few major copper discoveries, while exploration costs have skyrocketed, rising from USD91/ton in 2011 to USD802/ton in 2020. Mining companies are unable to meet the rapid growth in supply in the medium term. Miners' ability to replace operated mines is also stymied by a long production start-up schedule, with average lead times of 18 years for mines commissioned between 2020 and 2023 – a 40% increase over 20 years.
These processes are further extended by local socio-political issues such as environmental concerns, indigenous communities, and resource nationalizations, as well as rising production costs due to the increasing technical complexity of the deposits being exploited. Investments in brownfield projects and acquisitions remain a priority, but exploration and greenfield projects are lacking investment, which could lead to supply deficits in many raw material markets.
Mining companies must accelerate their growth while maintaining high levels of profitability. Tight financing conditions and the macroeconomic environment are making it more difficult to secure funding. Market valuations are becoming increasingly divergent, often due to portfolios focused on the supply of minerals critical to the energy transition. This is driving companies to restructure their portfolios. We therefore expect an increase in mergers and acquisitions aimed at refocusing on minerals essential to the energy transition. With a robust outlook for copper demand, further consolidation of copper assets is anticipated. This is evidenced by BHP and Lundin Mining’s $3 billion acquisition of Filo Corp. in Argentina in 2024, following the collapse of BHP’s negotiations to acquire Anglo American. Mining companies are also divesting certain non-strategic or high-growth assets, such as Platinum Group Metals (PGM).
Steel – We expect steel production to increase by about 1% YoY in 2026 (compared with a 2% YoY decline in 2025), driven by the emerging economies of Southeast Asia as well as by developed economies. However, production is expected to grow more slowly than capacity, reducing capacity utilization rates – all while the rebound in demand is expected to be minimal following two years of contraction. Persistent overcapacity, primarily in Asia, on the one hand, and the rise of protectionist measures favoring domestic production, on the other, are expected to maintain divergent steel prices across regions: falling in Asia, averaging around USD500/ton for the year, and rising in Europe (USD700/ton) and North America (USD1,150/ton).
Aluminum – Global aluminum production is expected to decline slightly by about 0.5% YoY in 2026, as Gulf producer countries are paralyzed by the blockade of the Strait of Hormuz. Although members of the Gulf Cooperation Council account for only about 8% of global production, they represent nearly 20% of exports, particularly to Japan (28% of imports), the United States (22%), and the EU (20%), causing significant disruptions to the supply chains of downstream industries (automotive, construction, electricity, packaging, etc.). Replacement capacity is limited, as China (60% of global production) is already operating near its ceiling of 45 million tons per year. At the same time, demand is expected to grow by 1.5% YoY, driven by the energy transition – particularly the electrification of vehicles, where aluminum serves as a lighter alternative to steel – and the packaging industry, where the metal is replacing traditional materials as part of a sustainability push. As a result, we forecast a price increase of around 20-25% YoY in 2026, peaking at just under USD3,500/ton on average for the year.
Copper – Despite stagnant mining production, hampered by challenges in several major producing countries (Chile, Indonesia, DRC), refined copper production is expected to grow by approximately 1.5% YoY in 2026, driven by rising volumes of scrap processed, primarily in China. At the same time, demand is projected to grow by 2% YoY, structurally supported by electrification. Despite a market surplus – even as it tends to tighten – supply tensions persist due to the buildup of US strategic stockpiles, fueled by expectations of higher tariffs on refined copper. Between January 2025 and June 2026, the United States nearly doubled its monthly import pace, accumulating 1.2 million metric tons of copper. This behavior helps keep prices high and we anticipate an average price of around USD13,900/ton in 2026, representing a 40% YoY increase.
Nickel – Global refined nickel production is expected to contract by 3% YoY in 2026, given Indonesia’s restrictive policy, as the country accounts for 60% of production. To reduce overproduction and support prices, Jakarta has cut ore extraction quotas to 270 million metric tons in 2026, down from 380 million a year earlier. Added to this is the risk of shortages of sulfuric acid – essential for producing battery-grade nickel – due to disruptions in the Middle East and the suspension of Chinese exports. Demand is expected to grow by nearly 5% YoY, driven by rising battery needs, though this will not fully absorb the supply surplus, which remains largely attributable to the expansion of China’s presence in the archipelago in recent years. As the leading importer of Indonesian nickel, China benefits from the relatively low prices resulting from overproduction by its local companies. Nickel prices are therefore expected to remain around an average of USD17,500/ton in 2026, slightly higher than the level observed the previous year.
Metals
