Steel price grinds higher as China braces for production cuts in H2 2022

• Steel price prints mild gains as US dollar moves jostles with downbeat China PMIs.
• Beijing’s preparations to mandate further production cuts in H2 2022 favor buyers.
• Hopes of China stimulus and challenges for hawkish Fed add strength to the bullish bias.

Steel price remains firmer during the sluggish Asian session on Monday, despite recently sidelined moves amid the US dollar’s rebound and fears surrounding China. The reason for the metal’s latest inaction could also be linked to mixed catalysts from Beijing and the market’s fears ahead of the key US jobs report for July.

That said, Construction Steel Rebar on the Shanghai Futures Exchange prints nearly 2.0% gains around 4,100 yuan per metric tonne whereas stainless steel rises close to 3.0% daily by the press time.

Recently, China’s Caixin Manufacturing PMI for July eased to 50.4 versus 51.5 expected and 51.7 prior. In doing so, the private activity gauge from China tracked the official PMIs, published during the weekend. It’s worth noting that China’s NBS Manufacturing PMI dropped back into contraction after the previous monthly improvement, down to 49.0 versus 50.4 expected and 50.2 prior. Further, the Non-Manufacturing PMI rose past 52.3 market forecast to 53.8, against 54.7 in previous readouts.

However, comments by global rating agency Fitch suggesting more stimulus from China appeared to have favored steel price. “China to roll out financial tools to boost infrastructure investment,” said Fitch.

On the same line could be theee   updates from Reuters saying, “Chinese government and steel industry’s reportedly agreeing to mandate further steel production cuts in the second half of 2022.”

Alternatively, the US dollar’s pause from the further downside around the one-month low joins fears of the economic slowdown weighing on the steel price. That said, the US Dollar Index (DXY) grinds lower near 105.80, down 0.05% intraday, as buyers struggle to retake control after witnessing hawkish comments from Minneapolis Fed President Neil Kashkari and firmer prints of the Fed’s preferred inflation gauge.

Looking forward, steel price may grind higher amid the US dollar’s likely weakness, as well as the anticipated stimulus from China. However, Friday’s US employment report for July will be crucial for the metal amid mixed concerns at the Fed and economic slowdown woes.