Chinese Steel Redirection: The Structural Threat to Gulf Manufacturers

A five-section analysis covering subsidized Chinese exports, the 2026 shipping crisis, downstream SME pressure, local content policy, and the GCC green steel transition.

Investigation | Read time: 15 minutes

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Chinese steel redirection into GCC markets is not a future risk. It is a current operational fact, and Gulf manufacturers need to treat it as a structural condition rather than a temporary market disruption.

According to the OECD Steel Committee, global excess steelmaking capacity reached 640 million metric tonnes in 2025, even as global steel demand contracted for the fourth consecutive year, falling more than two percent¹. China accounts for the largest share of that surplus, and with domestic demand falling an estimated 6.5 percent in 2025 due to structural contraction in its construction sector², Chinese producers exported a record 131 million metric tonnes in 2025¹, redirecting volume toward markets that have not erected high trade barriers. The GCC is one of those markets.

This article examines how that redirection works in practice, what the 2026 Strait of Hormuz shipping disruptions revealed about GCC supply chain exposure, how cheap imports split primary producers from downstream fabricators, what local content frameworks can and cannot do, and where GCC manufacturers can position themselves as carbon regulations reshape global steel trade.

State Subsidies Drive Export Redirection

The persistence of Chinese steel exports in a contracting global market depends on government subsidies that insulate producers from market forces. In 2024, the median Chinese steel company received fifteen times more in subsidies relative to its asset size than steel firms in other countries, up from tenfold in prior years, and 59 new provincial and municipal subsidy programs were introduced in 2025². At those subsidy rates, Chinese producers can export at prices that do not reflect true production costs. China has consequently built the largest global trade surplus across flat products, long products, semi-finished steel, and steel tubes¹.

The OECD Steel Committee has documented how Chinese producers are evading existing trade defenses through circumvention. Rather than shipping directly to tariff-protected markets, producers route steel through third countries, primarily in Southeast Asia, apply minor physical modifications to bypass product-specific duties, make overseas investments to alter certified origin, or embed steel inside downstream products exempt from protection measures². Imports of Chinese semi-finished steel into Indonesia, Malaysia, and Thailand grew 3.9 times in the first nine months of 2025 compared to the same period in 2024¹⁰. That intermediate steel is lightly processed and re-exported, making import monitoring difficult for GCC trade authorities.

Product Category	China Trade Surplus (MT)	Primary Circumvention Route	Impact on GCC Markets
Flat Products	17.3 million1	Southeast Asian rerouting2	Underpricing local manufacturers2
Long Products	7.6 million10	Minor product modifications2	Depression of local rebar prices11
Semi-finished Steel	4.7 million10	Billet exports via Turkey/GCC10	Suppression of local scrap demand11
Steel Tubes and Pipes	3.4 million10	Downstream product embedding2	Anti-dumping duty triggers12

Table 1. Chinese steel trade surplus by product category, circumvention routes, and impact on GCC markets. Sources: 1, 2, 10, 11, 12

For GCC authorities, the practical consequence is that standard anti-dumping investigations, which measure direct bilateral trade flows, miss a significant share of the actual import volume entering the region through indirect channels.

The 2026 Shipping Crisis Exposed Raw Material Risk

An escalation of conflict in early 2026 disrupted commercial shipping through the Strait of Hormuz, the main maritime channel for Chinese steel entering the Persian Gulf⁴. Chinese steel exports to the Middle East fell 19 percent year-on-year in March 2026, dropping to approximately 1.5 million tonnes¹³. The disruption, combined with rising anti-dumping barriers in other international markets, is expected to reduce China’s total annual steel exports by 11.1 percent in 2026 to approximately 105.8 million tonnes¹³.

The reduction in Chinese imports did not translate into relief for Gulf manufacturers. GCC steel mills operate direct reduced iron, or DRI, facilities, which produce steel from iron ore using natural gas rather than coal, and electric arc furnaces, or EAF, which require high-grade seaborne iron ore pellets and ferroalloys⁵. The Strait closure halted those critical shipments, forcing several local mills to cut production immediately¹⁴. Foulath Holding, the parent company of Bahrain Steel and SULB, declared force majeure on March 28, 2026, a legal clause that suspends contractual obligations due to unavoidable events, because it could not fulfil delivery commitments¹⁴.

Freight costs rose sharply as a result. Container rates from India to the UAE climbed from a pre-crisis level of $300 to $3,500 per twenty-foot equivalent unit, while rates from China reached $6,500 to $7,000¹⁴. Regional mills turned to local ferrous scrap and steel billets to replace seaborne pellets, pushing Saudi domestic scrap prices to 1,479.05 riyals per tonne in April 2026, the highest level recorded¹⁴. Saudi domestic rebar prices rose to between 2,300 and 2,460 riyals per tonne, or approximately $612 to $655¹⁴.

Despite elevated freight costs, Chinese steel products retain a significant price advantage over GCC domestic alternatives when maritime corridors are open. The following table shows prices from early May 2026.

Product / Origin	USD/MT	Delivery	Notes
Rebar 12-32mm — UAE (EMSTEEL)	$74116	Ex-Works UAE	May 2026 delivery
Rebar 10-32mm — Saudi Arabia	$78117	CPT Saudi Arabia	May 2026 delivery
Rebar Export — China	$480–$48516	FOB China	Prompt loading
Hot Rolled Coil 3mm — China	$595–$60517	CFR UAE	Tier 1 mills
Cold Rolled Coil — China	$660–$67017	CFR UAE	Standard grade
Billet — UAE (Local Mill)	$495–$50517	Ex-Works UAE	Commercial grade

Table 2. Price comparison: Chinese export offers versus GCC domestic ex-works prices, May 2026. Sources: 16, 17

For a procurement manager buying rebar in the UAE, Chinese product at $480 to $485 per tonne FOB undercuts domestic EMSTEEL pricing at $741 ex-works by a margin that no local operational efficiency can close without policy intervention.

Cheap Imports Split Producers from Fabricators

The pressure of underpriced imports has created a structural division between primary steel producers and downstream metal fabricators in the Gulf, and GCC trade policy has not yet resolved that tension. Primary integrated producers, including EMSTEEL in the UAE, Jindal Steel in Oman, and SULB in Bahrain, have the capital and government relationships to pursue defensive trade measures¹⁹. Saudi Arabia’s General Authority of Foreign Trade imposed definitive anti-dumping duties of 6.5 percent to 27.3 percent on Chinese welded stainless steel pipes for five years from June 30, 2025¹². The UAE Ministry of Economy opened an anti-dumping investigation into Chinese hot-rolled heavy steel sections following a complaint by Emirates Steel Industries²³.

Downstream metal fabricators, most of which are small and medium-sized enterprises, occupy the opposite position. For these companies, cheap Chinese hot-rolled coil, plate, and billet are attractive inputs that reduce project costs⁸. When governments impose import tariffs to protect primary producers, they raise the raw material costs of downstream fabricators, making locally manufactured finished goods less competitive against imported final products⁸.The SME that was buying cheap imported coil now pays more for steel and still competes against cheap imported finished metal goods.

In 2026, Gulf manufacturing SMEs face a profit margin crisis. Non-oil economic growth in the GCC is projected at 0.1 percent in 2026, limiting domestic demand, while logistics fees, commercial rents, labor costs, and compliance expenses all continue to rise¹⁸. Primary producers can absorb market volatility through their scale and state backing. Downstream fabricators cannot¹⁸. A downstream enterprise that must buy expensive domestic steel while competing against cheap imported finished metal faces a cost structure that is not viable without targeted government support.

For an operations director at a Gulf metal fabrication business, this situation requires an immediate assessment of raw material sourcing, contract pricing, and eligibility for industrial zone support programs. If a fabricator’s current contracts were priced before the March 2026 freight spike, those contracts may now be loss-making. Repricing or renegotiating open contracts before the next project cycle begins is the single most consequential short-term action available to downstream SME management.

Local Content Policy Shields Primary Producers

GCC governments are using domestic procurement frameworks to create a protected market for local steel producers on publicly funded projects, reducing the volume of output exposed to cheap import competition. Saudi Arabia’s Local Content and Government Procurement Authority has expanded its National Product Mandatory List, which is expected to cover over 2,000 products by 2026²⁶. Starting August 1, 2026, 233 products will carry minimum local content percentages as a prerequisite for participating in government contracts, with additional products added in 2027²⁸. Companies must pass annual audits measuring spending on local goods, asset depreciation, services, and workforce development²⁹.

The UAE operates a parallel system through the National In-Country Value, or ICV, Program managed by the Ministry of Industry and Advanced Technology. The ICV score is embedded in bid evaluation models for the Abu Dhabi National Oil Company, the Dubai Electricity and Water Authority, and the EDGE Group³¹. In Dubai, the formula weights four components.

Evaluation Component	Weighting	Measurement Metric
Local Manufacturing	55%	Production volume within Dubai, per Certificate of Origin standards
Emirati Ownership	15%	Percentage of equity held by UAE nationals
Parent Company Domicile	15%	Headquarters located in Dubai or the UAE
Emiratization	15%	UAE nationals employed for more than one year

Table 3. Dubai ICV formula: evaluation components and weighting. Source: 32

A high ICV score can secure a government contract for a local fabricator even when its financial bid is higher than a competitor relying on cheap imported steel. Participating entities reported spending 48 billion dirhams on local goods and services in the first half of 2024²⁷.

Oman applies equivalent rules through the Directorate General for In-Country Value, established under the Oman Investment Authority in January 2022. The authority enforces a Mandatory List of 312 products and services that must be sourced locally, and public sector tenders must invest at least 10 percent of the contract value back into the Omani economy through local sourcing, training, and supplier development^{34, 35}

The limitation of these frameworks is administrative rather than conceptual. For smaller industrial firms, the annual audits and data consolidation requirements are a genuine overhead burden²⁹. A downstream fabricator that cannot staff a dedicated compliance function may fail to achieve certification, and therefore fail to access the protected government market, despite manufacturing locally.

Green Steel Gives GCC Producers a Durable Cost Advantage

The most durable long-term defense for GCC steel manufacturers against subsidized Chinese imports is a production technology advantage that Chinese blast furnaces cannot easily replicate. The EU Carbon Border Adjustment Mechanism entered its definitive phase on January 1, 2026, imposing carbon tariffs on imports of steel, iron, and aluminum into Europe to prevent carbon leakage³⁸. Because GCC steelmaking uses gas-based DRI and EAF technology rather than coal-fired blast furnaces, Gulf producers sit in the first quartile of the global steel emissions curve⁵. When carbon costs are applied at European and other regulated market borders, GCC producers can compete in markets where high-emission Chinese steel faces a structural price penalty.

Regional producers are committing capital to extend that advantage. In Oman, the Jindal Steel Group is building a 5 million metric tonne hydrogen-ready steel plant in the Duqm Special Economic Zone, with the first phase expected to begin operations in the first quarter of 2027^{5, 41}.The group’s long-term target is 10 million metric tonnes of capacity in Oman under the Oman Vision 2040 program⁴¹. EMSTEEL in the UAE has committed to cutting its absolute greenhouse gas emissions by 40 percent in its steel operations by 2030, with full carbon neutrality targeted by 2050, and has partnered with ADNOC for carbon capture at its Abu Dhabi complex²⁰.

Company / Country	Project Type	Technology	Key Partners	Target / Timeline
Vulcan Green Steel (Oman)	5 MT/yr greenfield mill	H2-Ready DRI + EAF	Hydrogen Rise AG, Metso Outotec	European auto / wind, Q1 2027
EMSTEEL (UAE)	Decarbonize 3.5 MT capacity	CCUS (Al Reyadah)	ADNOC, Delong Steel	40% absolute GHG cut by 2030
Essar Group (Saudi Arabia)	4 MT flat product mill	Gas-Based DRI + EAF	Regional banking consortium	Saudi giga-projects, 2028
Aramco-PIF-Baosteel (Saudi Arabia)	1.5 MT plate mill	Gas-Based DRI + EAF	Baosteel, Aramco, PIF	Saudi industrial mfg, 2029
SULB Company (Bahrain)	Circular maritime recycling hub	Energy-optimized DRI + EAF	SMS group, Maersk, Priya Blue	GCC structural steel, ongoing

Table 4. Green steel investment projects and decarbonization programs across the GCC. Sources: [5][19][20][21][40][41]

SULB in Bahrain has implemented energy audits with the SMS group to reduce fossil fuel consumption and surpass regional carbon targets, while its partnership with Maersk, APM Terminals, and India’s Priya Blue for ship recycling represents a practical model for reducing dependence on seaborne iron ore imports^{21, 43}.

Strategic Recommendations

Four measures would reduce the exposure of GCC manufacturers to Chinese steel redirection and the supply chain vulnerabilities it creates.

First, GCC countries should establish a unified trade defense office. Individual anti-dumping investigations are effective against direct imports but fail against circumvention through third countries². A joint regional authority would standardize quality certifications, coordinate import monitoring, and enforce common duties across the GCC customs union, preventing underpriced steel from entering through the weakest border.

Second, Gulf steelmakers should invest in regional scrap metal collection and recycling networks. The 2026 shipping crisis demonstrated that reliance on seaborne iron ore pellets is a single point of failure for DRI and EAF operations¹⁴. Domestic scrap recycling, modeled on SULB’s Bahrain maritime recycling hub, would provide a stable ferrous input supply that is not exposed to Strait of Hormuz disruptions.

Third, rather than extending protective tariffs on steel inputs, which compress downstream fabricator margins, regional governments should introduce targeted support for certified manufacturing SMEs: energy discounts, reduced rents in industrial zones, and low-interest working capital facilities^{8, 18}. This approach lowers the operational overhead of local fabricators without penalizing them for their structural position between protected input markets and cheap imported finished goods.

Fourth, GCC governments should update their ICV and local content programs to include carbon intensity metrics²⁷. Assigning higher ICV scores to contractors who specify certified low-carbon steel from regional producers would create a domestic demand base for green steel that allows local primary producers to justify capital-intensive decarbonization investment even when foreign, high-emission steel remains cheaper on a simple cost-per-tonne basis.

Conclusion

The four measures above address current and near-term structural pressures. The longer horizon matters equally. As carbon border mechanisms tighten across Europe and likely extend to other regulated economies, the steel market will bifurcate more sharply between low-emission and high-emission producers.

GCC manufacturers, whose gas-based production technology already places them near the bottom of the global emissions curve, are better positioned for that bifurcation than they may appear when judged only by current price-per-tonne comparisons.

The strategic task for GCC industrial policymakers is not simply to defend market share today. It is to ensure that the capital, the workforce skills, and the supply chain depth required to supply a carbon-priced global market exist within the region by the time those market conditions become the global default.

That is a ten-year industrial development problem, and the investment decisions taken by Gulf governments and primary producers between 2025 and 2028 will determine whether the GCC is a supplier or a bystander in that market.

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