Aug 18, 2022
Steel price slides towards monthly low on China’s covid, heat wave concerns

• Steel price drops to the lowest levels in more than two weeks amid demand, profit concerns.
• Rationing electricity due to heat waves restricts profit concerns and disappoints steel makers.
• Doubts over PBOC’s ability to revive economy, the jump in coronavirus cases exert downside pressure on the metal price.

Steel price stands on the slippery ground as bears cheer grim concerns surrounding the largest metal user China during early Thursday in Europe. Also keeping the steel bears hopeful is the lack of significant data/events that allowed the traders to consolidate the metal’s recent gains after holding it tight for multiple days.

That said, Steel Rebar futures on the Shanghai Futures Exchange (SFE) fell 2.1% whereas the hot-rolled coil slumped 2.6%. Further, stainless steel loses around 3.4% to revisit the monthly low.

A forced stop in steel manufacturing, amid a heat wave in China, joins the pre-established emission-linked limited to reduce the profit motive of the steel manufacturers, which in turn dashed optimism surrounding the metal. Further, rising steel scrap prices and supply crunch could also be added to the list of catalysts negatively affecting metal prices.

 “A record-breaking heat wave gripping several regions in top steel producer China since mid-July has caused power shortages, forcing authorities to ration electricity with residential use prioritized over industrial consumption,” said Reuters.

Also, covid conditions recently worsened in China, renewing fears of another round of virus-led lockdowns, which weigh on the metal prices. “China’s Covid cases surged to a three-month high, driven by a worsening outbreak in the tropical Hainan province that has become the country’s biggest since Shanghai was shut down in the spring,” said Bloomberg.

Elsewhere, headlines surrounding the People’s Bank of China (PBOC) and Taiwan also raise fears concerning China and lured steel bears. “PBOC has limited room to ease due to concerns over inflation and capital flight,” Reuters reported late Wednesday, citing PBOC insiders. The news also mentioned that the economic recovery is looking increasingly shaky.

The latest comments from the US Trade Representative’s office stating, “Early this autumn, the US and Taiwan will begin formal negotiations on a trade initiative,” seem to renew the fears of the US-China tussle and favor the USD/CNH buyers.

Furthermore, the statements from a top US diplomat for East Asia Kritenbrink also add to the woes of the Sino-American tension over Taiwan. The diplomat said, “The US is committed to maintaining peace and stability across the Taiwan Strait.”

Alternatively, China Securities News mentioned, “China may issue 1.5 trillion yuan in additional debt as part of an investment push.” The news, however, failed to improve market sentiment and dragged the steel prices towards the south.

Source: FX Street