Steel prices see more downside as a bleak growth outlook warrants more production cuts

• Steel prices are facing the heat of a decline in global growth prospects.
• Soaring energy prices in Eurozone have forced leading steel producers to scale down operations.
• Steel prices will remain vulnerable until global demand gets revived.

Steel prices have remained vulnerable for the past few weeks as a slowdown phase in the world’s largest metal-consuming economy has trimmed growth prospects further. The Chinese economy is facing the headwinds of a resurgence in Covid-19. Lockdown curbs have been announced by the administration to contain the spread of the pandemic, which has forced restrictions on the movement of men, materials, and machines.

Apart from that, the Chinese economic activities indicator, Caixin Manufacturing PMI data slipped sharply last week. The economic data was trimmed to 49.5 against the consensus of 50.2 and the prior release of 50.4. This soared signs of de-growth in China and it is highly expected that steel numbers will tumble eventually.

The investing community is aware of the fact that the Eurozone and the UK economy are facing the heat of soaring energy prices. After Russia halted energy supplies citing western sanctions responsible for taking a difficult step, the energy crisis deepened in the trading bloc and pound zone. In response to volatile energy prices, the world’s second-largest steel producer in the world, ArcelorMittal, has decided to shut down operations in a factory in Europe. The decision of shutting down production capacity is also forced by bleak economic growth and higher expenses for tackling CO2 emissions.

As Europe has tapped the supply cut route due to lower demand and higher energy prices after China, it is highly likely that the supply-demand mechanism will get fixed to some extent. But unless and until the global demand gets revived, steel prices will remain vulnerable.