Steel prices rebound on supply constraints as mills owners voluntarily reduced production

• Steel prices have witnessed some bids on escalating supply worries.
• The Steel mills owners have voluntarily dropped their total production to reduce their inventory losses.
• De-carbonated environmental issues will keep a check on the production of steel in China.

Steel prices have witnessed a minor rebound despite the onset monsoon season in Asia. The season-sensitive commodity has picked some bids after remaining lower from a few trading sessions despite escalating odds of a fall in the demand for steel due to the arrival of monsoon in the Asian territory. The arrival of monsoon results in lower construction activities as monsoon rains halts the construction process, which leads to a significant fall in the demand of steel.

The major rationale behind the recovery in the steel prices is the advancing supply constraints. Various steel mills owners have voluntarily halt their production capacities to extremely lower levels. The steel mills owners are operating in an already high-inventory market thanks to the earlier Covid-19 issues and lower usage of steel due to higher interest rates, which reduced the demand for steel in the global market.

Now, focus will remain on the Caixin Manufacturing Purchase Managers Index (PMI) which will reveal the economic activities in China. It is worth noting that China is the leading consumer of steel. As per the market consensus, the Chinese economic data is expected to land at 47, lower than the prior print of 48.1. The economic data is expected to remain lower despite a relief from Covid-19 issues in the Chinese economy. However, the environmental issues that had forced the steel mills owners to reduce the total output will continue to sustain longer.