CRU: El Niño may threaten strategic steel supply chain waterways

Of the eight waterways covered, two carry the most risk – Panama Canal and Yangtze River. Both are impacted primarily by rainfall, but in opposite ways. The Panama Canal will face low water levels that will raise shipping costs as the number of vessels that can transit the canal is limited, forcing some ships to utilise a land option or traverse the southern tip of South America. 

The Yangtze River often sees heavy rainfalls during an El Niño, which can lead to flooding, slower river transit times and delays at east coast ports. This waterway is vital to the Chinese steel market, and any disruptions can have a global impact.

The full list of these strategic marine transportation routes follows, alongside a more detailed view of the two to watch as they pertain to the steel supply chain.

Eight ‘steel supply chain chokepoints’ to watch

Starting with logistics, CRU has identified eight important waterways that play a key role in the global steel supply chain. They will be impacted in different ways, and many of them will even see higher rainfall, which will lead to improved transportation conditions as long as flooding can be avoided.

• In North America, the Mississippi River (1) and the St. Lawrence Seaway along with the Great Lakes (2) are used to transport both steel and steel raw materials into and out of the US via the Gulf of Mexico and Atlantic Ocean. The impact on these waterways is moderate. Increased rainfall in the southern states will raise water levels on the river while there is less ice cover on the Great Lakes. The downside risk is flooding of the river systems and the higher temperatures in the north reducing water levels after the winter.
• The logistics route most affected by El Niño is typically the Panama Canal (3). This part of the world will be dry, which is likely to bring down water levels in the canal and in the Gatun Lake in the middle of the canal.  
• The Paraná and Paraguay rivers (4) are used to transport agricultural products, fertilizers and iron ore. In this part of the world, it rains a lot during El Niño years, which will facilitate the flow of goods to and from South America’s inland. Iron ore producer LHG Mining, which is in the middle of an aggressive ramp up phase, will benefit from a ‘Super El Niño’.
• In Europe, the Rhine (5) and Danube (6) rivers will see higher water levels in the autumn due to increased rainfall, which will benefit transportation of steel and steel raw materials to the center of Europe. The bad news is that El Niño winters tend to be dry, which could lower water levels in these crucial rivers. The Danube is an important river for transportation of iron ore from Ukraine to central Europe.
• Conditions at the Suez Canal (7) are generally not impacted by either El Niño or La Nina.
• Finally, the second most important chokepoint is the Yangtze River (8) which connects China’s inland to key export ports around Shanghai. El Niño years typically mean higher rainfall in the region.

Panama Canal faces high risk of throughput disruption

The Panama Canal is one of the most important waterways in international trade. The canal is particularly important for transportation of oil and gas. For dry bulk cargoes, the canal is primarily used for grains and fertilizers while there is just over 10 million metric tons (mt) per year of steel-related products (steel, iron ore, metallurgical coal) that go through the canal, making up around 15% of dry bulk throughput.

During the 2023–2024 El Niño, Pacific Ocean temperatures reached a level 1.5˚C above normal levels. As expected, this El Niño reduced rainfall in Central America, and water levels in the Panama Canal fell dramatically, even lower than the levels seen during previous El Niño cycles. This slowed down traffic through the canal and resulted in severe congestion. As a result, dry bulk throughput fell by 75% and needed eight months to return to normal levels.

Current forecasts suggest that temperatures in the Pacific Ocean will rise to 2.5˚C above normal levels by the end of the year. Such a ‘Super El Niño’ (which occurs when sea temperatures rise to 2.0˚C above a normal year) will certainly impact Panama Canal throughput. For the steel supply chain, we can expect the following trades to be affected:

• Metallurgical coal: Canada has become an increasingly important metallurgical coal supplier to Europe, especially after European mills decided to stop buying Russian coal. Canada’s metallurgical coal mines are all located on the west coast and in 2025 the country shipped 1.1 million mt of metallurgical coal to Europe.
• Iron ore: There is relatively little iron ore traded through the Panama Canal. The most important trade flow is exports of pellet feed and pellets from Venezuela to China. This volume is modest at only 700,000 mt in 2025.
• Scrap: In 2025, the USA exported 700,000 mt of scrap from the west coast to Turkey, Italy and other European countries.
• Steel products: This is where we see the largest impact on the steel supply chain. East Asia is a key supplier of steel to the east coast of the USA and Mexico, and in 2025, we saw 7.5 million mt of steel products being traded on this route.

Besides these trade flows, another likely scenario is rising freight rates caused by the congestion, particularly for smaller vessels such as Panamax (~80,000 mt) and smaller.

Early indications point towards water levels in the Panama Canal are holding up relatively well so far this year compared with 2023. However, the sharp rise in Pacific Ocean temperatures suggest that a ‘Super El Niño’ is developing fast, and the situation could change quickly towards the end of the year. 

Heavy rainfall and flooding in Yangtze River will extend travel time for a variety of steel 

Another potential chokepoint for the steel supply chain is the Yangtze River in China. Although the El Niño impact on China tends to be inconsistent, it has often brought heavier rainfall to the middle and lower reaches of the river, particularly as the weather pattern starts to weaken. This was evident in 1998 and 2016, when heavy rainfall and rising water levels led to severe flooding when El Niño started to subside.

For the steel value chain, the most direct impact from such weather pattern is on logistics. The Yangtze River is a critical transport corridor for steel products and bulk raw materials such as iron ore. Disruption along the river can affect steel product deliveries to end users and the flow of raw materials to mills. Steel producers located along the upper reaches of the river are especially exposed to supply risks of raw materials.

Ports along the east coast face similar disruptions. Ports in Shanghai and Zhejiang province, which are key distribution centers of iron ore to steel mills along the Yangtze River, will slow operations amid heavy rainfall and strong winds. This will cause shipment delays and port congestion, adding further constraints to supply chains.

It appears as if domestic steel demand could be undermined as hot weather and heavy rainfall slow construction activity, though our view is that demand will not disappear but instead be postponed once weather conditions normalise. If the abnormal weather pattern causes damages to buildings or infrastructure, steel demand will even be supported by post-disaster rebuilding.

Supply chain disruptions are expected

Supply chain disruptions in the commodity markets can seem like an everyday occurrence. Sudden delays related to infrastructure, weather, labour and more can quickly disrupt the balance between supply and demand. However, potential disruptions related to El Niño can be forecast in advance. According to the National Oceanic and Atmospheric Administration, the current El Niño is strengthening with peak intensity coming about in 2026 Q4, with a near-100% chance that it remains in place through early 2027 Q2. 

Potential El Niño-related disruptions can affect not only steelmaking raw materials, but international trade of finished steel products.  Due to this, we are advising clients with supply chain exposure to these waterways to plan accordingly. Contingency plans should include a review of safety stock levels and potential cost increases due to the use of alternative routes.