Strait of Hormuz Disruption: Global Sulfur Supply Chain Interruption and MHP Cost Impact

February 2026 proved to be a pivotal month of challenge and adjustment for the global stainless steel market. Driven by the compounding pressures of the Carbon Border Adjustment Mechanism (CBAM), intensifying geopolitical trade friction, significantly tightened raw material quotas, and sudden supply chain disruptions, the market navigated a complex landscape. Alongside post-holiday cost-push pricing, these factors are fundamentally shifting the industry’s competitive dynamics. The focus is moving away from traditional price wars toward a multidimensional contest centered on carbon footprint management, trade compliance, and upstream resource control. Regulatory Tightening and the Reshaping of Trade Policy In the macro-policy arena, the trend toward protecting domestic steel industries and fortifying "green barriers" continued to heat up. Most notably, a dramatic shift in U.S. tariff policy has sent shockwaves through global resource flows. U.S. Tariff Policy: Legal Battles and Broad Levies On February 20, the U.S. Supreme Court ruled in Learning Resources, Inc. v. Trump that the President could not cite the International Emergency Economic Powers Act (IEEPA) to impose tariffs solely for revenue generation. However, this loss of legal footing did not halt the administration’s protectionist agenda. To fill the policy vacuum and address a $1.2 trillion trade deficit, the White House immediately invoked Section 122 of the Trade Act of 1974. It announced a comprehensive 10% surcharge on the vast majority of imports (including stainless steel and downstream electromechanical/appliance goods) starting February 24, quickly raising it to 15% the following day. This historic tariff barrier is expected to cause profound tremors in global steel trade flows and terminal export demand. Indonesia: Compliance Crackdown Indonesian authorities publicly named a major stainless steel smelter for failing to submit mandatory Investment Activity Reports (LKPM) for eight consecutive years. This move signals a stricter regulatory environment ahead for foreign-invested enterprises regarding compliance. Europe: Defensive Lines and Review Expectations On February 20, the European Commission issued a notice regarding the upcoming expiration (November 19, 2026) of anti-dumping measures on stainless steel cold-rolled flat products from India and Indonesia, clarifying the timeline for review. The market is already pricing in expectations for the post-expiration competitive landscape. Meanwhile, peripheral producers like Turkey have been warned to provide verified carbon emission data to avoid high CBAM default penalties. Conversely, the German Environment Minister’s proposal to prioritize domestic "green steel" procurement has faced criticism for being unrealistic, given the country's heavy reliance on imported iron ore. China: Import/Export Policy Effects On the export side, China expanded its export licensing system to cover all steel products (including stainless) effective January 1, 2026. This explains the "rush to export" seen in late 2025 and remains a key variable for export pacing and compliance costs in February. On the import side, China successfully renewed and continued enforcing anti-dumping measures on certain stainless steel billets and hot-rolled plates, maintaining constraints on specific supply origins. Price Trends: Global Cost Passthrough with Regional Divergence Market fundamentals were underpinned by soaring raw material costs and exchange rate volatility, triggering a distinct wave of price hikes across major global producers in February. Asia Implementation of Hikes: A leading South Korean steelmaker raised prices for the 300-series by KRW 200,000/ton, citing raw material costs and currency factors. Similarly, a major Japanese producer raised 300-series prices by approximately JPY 20,000/ton, driven by nickel prices. The Taiwan region was particularly aggressive, with mainstream mills announcing significant March price hikes of TWD 2,000/ton for 304 and 316L grades. Indonesian Export Pricing: Post-holiday, a leading Chinese-owned mill in Indonesia raised 304 export offers by $15/ton starting February 24, a move the market attributes to tighter nickel ore quotas. Furthermore, due to a tight international molybdenum market, Indonesian export quotes for the 316 series spiked by $100/ton in a single day, widening the spread against 304. China: Weak Reality vs. Strong Expectations: The Chinese domestic market is in a complex state of "production cuts, inventory accumulation, and cost support." While prices have bottom support—with 304/2B Coil stabilizing at roughly RMB 14,465/ton by Feb 27—the fundamentals show that Foshan and Wuxi substantially entered an inventory accumulation phase in mid-February. Post-holiday real demand remains to be verified. Europe: A European stainless steel giant implemented a comprehensive increase in alloy surcharges for 304 and 316L grades for European clients in February. Raw Materials: Quota Cuts Meet Sudden Disruptions Supply chain fragility was laid bare this month, with Indonesia at the epicenter. Quota Slash: The Indonesian government announced a drastic cut in the 2026 nickel ore mining quota to 260–270 million tons—a reduction of over 100 million tons year-on-year. This direct catalyst pushed LME nickel prices to a three-year high. Additionally, industry insiders worry that the newly signed U.S.-Indonesia Reciprocal Trade Agreement (ART) could impact the existing Chinese-dominated nickel ecosystem. Unexpected Incident: Further exacerbating risk, a landslide occurred at a new energy material facility within an Indonesian industrial park (related to tailings operations), leading to a suspension of work and an investigation. This added significant uncertainty to an already tight supply line. Diplomatic Response: To manage systemic supply chain risks, India and Indonesia convened a critical minerals conference in Jakarta, seeking deeper ties in the nickel and lithium sectors. Corporate Dynamics: Pressure, Expansion, and Upgrades Global giants showed significant regional divergence in their strategic responses to the complex environment. Europe – Under Pressure: Several European majors released annual reports in February, attributing subdued performance to weak European demand, price pressure, and maintenance at overseas facilities. While some noted the medium-term protective value of CBAM, they admitted short-term pressure from pre-emptive imports. Outlooks for 2026 remain cautiously optimistic, hinging heavily on the EU’s trade defense measures. Asia – Aggressive Expansion: In contrast, Asian firms are expanding. In India, a major producer signed an agreement under the PLI 1.2 scheme to drive product upgrades, while another special steel firm plans a INR 280 million expansion. Chinese firms are accelerating globalization, with a domestic fastener company investing RMB 167 million to build a production base in Vietnam. Domestic (China) Projects: Progress continues on the ground. A leading mill completed the R2 roughing section of its hot rolling upgrade; a Zhejiang-based materials firm completed the core steel structure for its high-end Ni-Cr project; and a South China special steel producer successfully trialed its Cold Rolling Phase II line. Technology & Applications: Validation in Critical Sectors Stainless steel’s value in new energy and infrastructure continues to be proven. Tech Breakthroughs: A leading Chinese enterprise achieved stable supply of self-developed SUS630 precipitation-hardening cold plates, breaking foreign monopolies and securing the domestic PCB supply chain. Hydrogen Energy: Research teams unveiled a new nitrogen-bearing austenitic stainless steel with superior corrosion and hydrogen embrittlement resistance compared to 316L. Terminal Applications: India’s rapid rail system in Meerut began operations using lightweight stainless steel bodies, while Philadelphia selected ultra-corrosion-resistant 316L for the U.S. Semiquincentennial (250th anniversary) time capsule. Market Outlook: Opportunities and Challenges in Transition Looking toward late Q1 2026 and beyond, the market is in a period of transition between old and new drivers. Demand Verification Required: While prices have shifted upward due to supply shocks (quotas, accidents) and mill price supports, the inventory build-up in China serves as a warning. The rally must be validated by genuine downstream demand in March. If absorption lags, the market risks a correction following a "volume-less price hike." Trade Protection & The "Green Premium": As EU reviews kick in and CBAM carries financial weight, global trade walls are rising. European mills will rely on these for profit repair. However, compliant Asian mills with green power resources and carbon traceability may offset risks and even command a "Green Premium" in global pricing. Supply Chain Regionalization: The combination of China’s export licensing, resource nationalism in mining countries, and the rapid 15% U.S. tariff implies an irreversible shift toward shorter, bloc-based supply chains. The winning strategy is shifting from simple product exports to localized production and coordinated supply chain globalization. Companies that have already established compliant footprints in high-potential or tariff-exempt regions (like Southeast Asia or Latin America) will dominate the next cycle.

Against this backdrop, the value of energy storage and grid infrastructure becomes particularly prominent. If conflict persists, the core objective of energy systems will shift from cost optimization to systemic resilience. Distributed energy, microgrids, and storage possess an insurance-like function; their value becomes more visible under extreme conditions. Even if elevated raw material prices increase project costs, higher policy priority may provide long-term support.

In times of peace, oil and gas are cost variables; in a war context, traditional energy becomes a security variable. The escalation of conflict in the Middle East at the end of February led to a high opening for oil prices on the first trading day of March. During peacetime, energy prices fluctuate around the supply-demand gap, with the market focusing on production, inventory, and cost curves. However, in a war environment, the market first trades not on production but on deliverability. Whether key shipping routes are open, whether insurance costs soar, and whether sanctions spread, all quickly translate into risk premiums. As a result, oil prices exhibit high fluctuations, even if actual supply has not significantly decreased, as prices are pushed up by delivery uncertainties. Energy thus transforms from a commodity into a strategic resource. As an analyst in the new energy sector, I believe that this change does not simply benefit new energy. Rising oil prices reinforce the logic of electrification, making EVs and renewable energy more economically attractive. However, the macroeconomic uncertainty brought about by war may also dampen consumer and investment confidence. If high oil prices drive inflation and slow growth, overall demand for cars and industry will slow down, and new energy will not be immune. Therefore, the investment logic for new energy is no longer unidirectional, but depends on the balance between substitution effects and macroeconomic contraction effects. A deeper change lies in the fact that capital is beginning to re-evaluate energy security. The traditional oil and gas system is highly dependent on cross-border transportation and continuous fuel supply, with its vulnerabilities lying in shipping and geopolitics. In contrast, wind and PV do not require continuous fuel input during operation, and energy storage can enhance the stability of the power system, giving new energy strategic value in a war environment. They are not only low-carbon tools but also a path to reducing external dependence. The security attributes of new energy are thus being revalued. However, it must be recognized that this security attribute is not absolute. The manufacturing of new energy is highly dependent on critical minerals such as lithium, nickel, and cobalt, with their mining and processing concentrated and heavily reliant on transportation. If upstream resource policies tighten or logistics are disrupted, risks will also propagate through the industry chain. Therefore, the security of new energy is operational security, not supply security. This means that future investment logic will shift from simply pursuing the lowest cost to focusing on supply chain control capabilities and regional diversification. In a war environment, the allocation of risk premiums by capital changes. Transportation premiums, geopolitical premiums, and supply chain concentration premiums all rise. The volatility of traditional energy intensifies; new energy generation assets gain a security bonus; and critical minerals and midstream processing capabilities become new strategic nodes. Efficiency is no longer the sole criterion, with redundancy and controllability becoming important components of the valuation system. Deglobalization and supply chain restructuring may push up the cost center of the industry, but they also enhance the strategic position of assets. In this context, the value of energy storage and power grid assets stands out. If conflicts persist, the core goal of the energy system will shift from cost optimization to system resilience. Distributed energy, microgrids, and energy storage have insurance-like attributes, and their value becomes more evident in extreme scenarios. Even if high raw material prices increase project costs, an elevated policy priority may still provide long-term support. Over the past five to ten years, the narrative of the energy transition has largely focused on new energy as a tool for decarbonization to ensure sustainable development of the planet. However, geopolitical tensions in the last two to three years have redefined new energy as part of the energy security framework. Within new energy, it is not just the power generation assets that are being repriced, but also energy storage and the power grid. 1) In a war environment, the core issue of the energy system shifts from efficiency to resilience During peacetime, the goal of the energy system is to maximize efficiency: lowest cost, highest utilization rate, and optimal allocation. Cross-border trade and centralized power generation have made the global energy structure highly globalized and scaled. War exposes the vulnerabilities of such a system. Maritime transport routes, natural gas pipelines, tanker insurance, key ports, and large power plants can all become risk nodes. At this point, the system's priority is no longer efficiency but resilience – the ability to maintain basic operational capacity under shocks. Energy storage and the power grid are at the core of a resilient system. 2) Energy storage: from an arbitrage tool to system insurance In normal circumstances, the value of energy storage mainly comes from electricity arbitrage, ancillary services, and peak load regulation, with its return on investment depending on fluctuations in electricity prices and policy subsidies. However, in a wartime context, the value of energy storage is redefined. It is no longer merely an economic optimization tool but a guarantee of power system stability. Energy storage can provide emergency support during fuel supply disruptions or grid shocks, preventing the power system from collapsing due to a single point of failure. This means that energy storage assets have insurance-like attributes. When system risks rise, capital's risk appetite for these assets increases. Even if high raw material prices drive up project costs, there may still be stronger policy support because of the rising strategic value. The valuation logic of energy storage thus transitions from "IRR-driven" to "system safety premium." 3) Power grid: an undervalued strategic hub The impact of war on the energy system often first manifests in the transmission and distribution network. Centralized energy structures rely on a few key periods, and once damaged, the impact is widespread. Therefore, power grid upgrades and digitalization have become the focus of secure investments. Enhancements in smart grids, regional interconnections, grid redundancy, and distributed access capabilities can significantly strengthen the system's resilience to shocks. The investment logic for power grid assets becomes clearer in a wartime context: it is not only infrastructure but also the backbone of national energy security. In the long term, power grid upgrades will be a necessary prerequisite for the expansion of new energy. The fluctuations in new energy generation require more robust transmission, distribution, and dispatching capabilities. When risk environments rise, countries are more inclined to accelerate grid construction to reduce dependence on external energy. 4) Distributed Energy and Microgrids: The Strategic Significance of Decentralization While centralized energy systems are efficient, they are also highly vulnerable. Although distributed PV, community energy storage, and microgrids are relatively small in scale, they possess the capability for independent operation. In a war context, distributed energy has two advantages: first, it reduces the risk of single-point failures; second, it decreases reliance on cross-border fuel transportation. The strategic value of such assets is being re-evaluated in high-risk environments. 5) Deep Changes in Investment Logic The rising value of energy storage and power grids means that new energy investments no longer solely revolve around installation growth and cost reduction, but rather around system security and supply chain control. Key changes include: a. Capital is more focused on localized manufacturing and supply chain diversification; b. The weight of security in investment decisions has increased; c. The cost center may shift upward in stages, but the strategic premium has risen. The valuation system of the new energy industry is transitioning from a growth premium to a strategic premium. What opportunities and risks does geopolitics bring to China's new energy industry? 1) China's Energy Security Structure: From Import Dependence to Electrification Advantage China has long been one of the world's largest crude oil importers, with persistent energy security issues. In a wartime environment, oil price fluctuations and transportation risks increase, directly affecting energy costs and macro expectations. However, unlike before, China has established the most complete new energy manufacturing system globally. The high integration of the PV, wind, energy storage, battery, and EV industry chains gives China a manufacturing and scale advantage during the energy transition. In a war context, this advantage is beginning to translate into security attributes: an increase in electrification means a reduction in dependence on external fuels; an increase in new energy installations means a more resilient energy structure. Thus, China's new energy system has the potential for alternative security. 2) Energy Storage and Power Grid: China's Most Strategic Assets If the war becomes protracted, the core of the energy system will no longer be power generation capacity itself, but system stability. China's layout in energy storage and power grid gives it a relative advantage at this stage. In terms of energy storage, China possesses the world's largest battery manufacturing capacity and cost advantages. Under the logic of energy security, energy storage is no longer solely about economics, but has become an important tool for ensuring the stability and emergency response capability of the power system. At the policy level, there may be an emphasis on increasing the proportion of energy storage in the power system. Regarding the power grid, China has developed the world's largest ultra-high voltage transmission network and grid construction capabilities. The increased redundancy and interconnectivity of the grid help to absorb more new energy installations while enhancing the system's resilience against shocks. In a high-risk environment, investment in the grid may accelerate. This means that, under the security logic, China's energy storage and power grid assets have structural strategic premiums. 3) Critical Minerals and Supply Chain: Advantages and Risks Coexist China has advantages in the new energy manufacturing sector, but still relies on overseas layouts for upstream resources. The supply chains for critical minerals such as lithium, nickel, and cobalt are highly internationalized, and wars or geopolitical risks may amplify policy and logistics uncertainties. For China's new energy industry chain, the real challenge lies not in the manufacturing end, but in the stability and cost fluctuations of the resource end. The trend of supply chain deglobalization may push up the cost center, compressing profit margins. The core of future competition will shift from scale expansion to resource control capabilities and the diversification of global layouts. 4) New Energy Vehicles: China's Structural Advantages and Short-term Fluctuations The impact of the war environment on new energy vehicles also has a dual nature. On one hand, rising oil prices reinforce the economic advantages of EVs. In a context of high oil prices, the cost advantages of using EVs become even more evident, which is conducive to increasing the penetration rate among end-users. China has the world's largest EV capacity and supply chain system, with scale and cost advantages. On the other hand, high oil prices may suppress consumer confidence through inflation and macroeconomic uncertainty. If the war continues for a long time, global economic growth may slow down, putting overall car demand under pressure. Although new energy vehicles have a substitution logic, they cannot be completely independent of the macro cycle. Therefore, the short-term performance of China's new energy vehicle industry will depend on the relative strength of the substitution effect and macroeconomic drag. 5) Long-term Structure: Re-stratification of Strategic Assets In the era of energy security, the competitiveness of China's new energy system will be more reflected in three aspects: First, manufacturing scale and cost control capabilities; Second, the system support capacity of the power grid and energy storage; Third, the diversification of upstream resources and supply chain layout. War has accelerated the stratification of the global energy system. Traditional energy bears higher fluctuation risks; new energy power generation and power grid assets gain a safety premium; critical minerals become the focal point of geopolitical competition. For China, the new energy industry is no longer just an engine for growth but also a part of the energy security system. The investment logic will shift from pure growth rate and subsidies to strategic position and supply chain stability. Overall, as energy transitions from a cost variable to a security variable, the strategic value of China's new energy system rises, but it also faces higher supply chain risks and global competitive pressures. Energy storage and the power grid are becoming the core of system stability; new energy vehicles benefit under the substitution logic, but one must be wary of macro cycles; critical minerals will determine the cost center and industrial profit margins. In an era where war reshapes the energy order, stability is more important than growth. SMM New Energy Analyst Yang Le 13916526348

On March 2, the average price of SMM battery-grade nickel sulphate slightly declined compared to yesterday.

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So far, the FOB price of Indonesian MHP nickel is $15,658/mt Ni, and the FOB price of Indonesian MHP cobalt is $49,660/mt Co. The MHP payables (against SMM battery-grade nickel sulphate index) are 88-89, and the payable indicator for MHP cobalt element (against SMM refined cobalt (Rotterdam warehouse)) is 91. The FOB price of Indonesian high-grade nickel matte is $16,021/mt Ni.

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[SHFE Aluminum Morning Meeting Summary: SHFE aluminum consolidates narrowly in night session, downstream resumption slow, aluminum prices fluctuate] The Middle East turmoil triggered by the US-Iran conflict has become the largest geopolitical black swan for the global primary aluminum market, potentially causing supply disruptions at the million-mt level and pushing up smelting costs. Coupled with market risk aversion sentiment, aluminum price volatility may intensify. Going forward, it is necessary to remain vigilant against risks such as escalation of conflicts, strait blockades, raw material supply disruptions, and further macroeconomic disturbances impacting aluminum prices, and prudently address operational and investment risks brought about by supply chain fluctuations. Seasonal fundamental pressures remain prominent. On the supply side, new domestic and overseas aluminum projects are steadily ramping up production, with the liquid aluminum conversion ratio currently low. On the demand side, post-holiday processing material production is showing a steady recovery pace. However, under the current situation where seasonal supply exceeds demand and some goods are stockpiled at railway stations, it is expected that domestic aluminum ingot inventory will peak above 1.35 million mt after the holiday, setting a five-year high, which will be a key factor suppressing price rises. Overall, before and after the Chinese New Year, aluminum prices showed a trend of first declining then rising, and it is expected that SHFE aluminum will maintain a relatively strong consolidation pattern in the short term.

SMM Analysis: SMM's February 2026 blister copper RCs in sourth China were quoted at 2,200-2,500 yuan/mt, with an average of 2,350 yuan/mt, up 300 yuan/mt MoM...