With the recent unsettling of global markets, some say there is an overlooked casualty looming: steel and related stocks.

The price of steel has been steadily rising throughout the year, as oversupply is being continuously met by voracious demand from emerging economies, which are using the metal to build everything from new microwaves and washing machines to cars and trucks.

But any slight shift in demand from emerging markets could potentially affect the price of the commodity, says Jepp Papp, who helps manage $650 million for Oberweis Asset Management's China funds. "I would say it's definitely a margin story right now. If the 10% growth in China cools off to 9% or 8%, you could see prices come back down again."

So far this year, steel manufacturers across the world have been raising prices to keep up with the demand from emerging markets. Tokyo Steel has raised its domestic steel price, while Baosteel, which supplies steel to China, quickly followed suit last week. China Steel, which supplies the metal to the Taiwanese market, is expected to raise prices by between 2% to 6% in April.

Last week, the price of 4A New Steel Bales, a type of recycled steel, jumped 13.4%, the largest move for the commodity in three years, according to Metal Bulletin. Meanwhile, U.S. steel production increased 1.8% to 2.017 million tons in the week ended March 12 -- the first time production has cleared the 2 million mark in over three months.

Steel prices are headed up slightly this week, according to the American Metal Market, with prices of cold-roll Class One steel -- a fair benchmark class for the commodity -- trading at 32.50 cents per hundred sheets.

Steel manufacturers in the U.S. have fared similarly well. Last Thursday, shares in Nucor ( NUE - Get Report) jumped 5.3% to $63.12 after the company announced that first-quarter profit may rise to $1.25 a share because of strong global demand in 2006. On the same day, Worthington Industries ( WOR - Get Report) rose 3.8%, U.S. Steel ( X - Get Report) jumped 3.2%, Arcelor Mittal ( MT - Get Report) gained 1.8%, and AKS Steel ( AKS - Get Report) rose 1.2%, making steel producers the second-largest gainer for the day.

In addition, Ryerson ( RYI - Get Report) has surged 18% since Feb. 27 after saying it will review "strategic alternatives," including a possible sale of the company. (Steelmakers were mixed in recent trading Wednesday: AK Steel and Mittal were each down 0.6%, and Worthington was off 0.2%. Nucor was up 1.9%, Ryerson higher by 2.7% and U.S. Steel up 0.3% at $87.26 after trading as low as $85.91 intraday.)

But the downward pressure of a slowly unwinding yen carry trade and rising bearish sentiment in Asian markets may mean that steel prices have seen their best days. Following Tuesday's rout on Wall Street, China's Shanghai Composite lost 2% on Wednesday, the Hang Seng fell 2.57%, and the Nikkei 225 plummeted 2.92% amid renewed concerns about the yen carry trade unwinding, overheating Asian economies and the potential effects of a weaker U.S. outlook.

"We would expect supply-demand conditions for steel products to soften if the global economy grows slower than we forecast," writes Atsushi Yamaguchi, an analyst at UBS in Tokyo. "In addition, sharp appreciation of the yen could worsen earnings at customer companies" and thus decrease demand for steel.

Despite forecasting higher steel prices, Sean Darby, chief Asia strategist at Nomura Bank in Hong Kong concurs with the risks and says that commodity prices are already highly volatile and trading well above their five-year averages. While demand has been firm in 2006, "commodity markets had received a significant inflow of money from funds that were highly leveraged to the yen carry trade," he writes Tuesday. "Investors need to be aware central banks will continue to tighten through 2007."

Steel's bulls and bears do agree that global interest rate hikes are coming. If the price of steel continues to climb, then a large segment of manufacturing becomes more expensive, potentially resulting in higher consumer price inflation as producers seek to pass along the price hikes. But those who see the price of steel as already overvalued also see this as a consequence of overheated emerging-market economies, which are overdue for interest rate hikes.

"Both China and India have not raised interest rates sufficiently to cool their economies, while infrastructure project demand is still germinating," says Darby.

Furthermore, if global rate hikes are afoot, growth of emerging-market economies would slow, pushing the price of steel down as oversupply in these economies materializes.

On a related note, some believe foreign steel manufacturers may now be overvalued. China Precision Steel ( CPSL) was one of the day's biggest losers on Tuesday, shedding 5.47% to $6.40; the stock traded as high as $16.58 last year. (In recent trading Wednesday, the stock was rebounding, up 2.7% to $6.57.)

The bullish case for steel rests on the argument that demand shows no sign of slowing in the Middle East, while mines in China often have insufficient technology and skilled workers to produce the metal for construction.

"Globally, steel is strong in most major geographic regions, including China where the strength in the market has seen 'surplus' capacity refuse to withdraw," says an internal memo issued to traders at broker J.M. Finn in London. The memo notes that demand from the Middle East is strong, in particular Dubai, where 25% of the world's cranes are currently situated.

"This all paints a strong consumer and capital expenditure demand picture," the memo continues. "Ultimately, this strength will rekindle inflation fears if widespread capacity shortages emerge, as is starting to occur."

Again, such a scenario would likely spur rate hikes by global central bankers, curtailing economic growth and hurting demand for steel.

Falling steel prices would benefit big buyers of the metal, including automakers Ford Motor Company ( F), General Motors ( GM), Daimler Chrysler ( DCX) and Toyota Motors ( TM).

Meanwhile, Nomura's Darby recommends buying a basket of Asian shipbuilding stocks, such as Mitsui ( MITSY), which "represent a low-risk proxy for underlying commodity demand in China and India." In addition, they give a low-risk exposure to commodities and to the divergence of the growth between China and India and the rest of the world.

What has kept the price of steel so high, adds Papp, is that steelmakers have been so cautious in how much they are supplying to emerging markets such as China. But if past cycles are anything to go by, this situation could reverse.

"In past cycles, steelmakers have ramped the supply as demand has decreased, and you've got massive price declines," he says.

Daniel Harrison is a business journalist specializing in European and emerging markets, in particular Asia. He has an MBA from BI, Norway and a blog at www.theglobalperspective.biz. He lives in New York.