Steel price aims a rebound on soaring supply worries in China and Eurozone

• Steel supply worries are extending to Eurozone amid soaring energy prices.
• An escalation in supply worries has trimmed the impact of subdued steel demand.
• Lower inflation and the announcement of stimulus packages in China will strengthen the steel demand ahead.

Steel prices are displaying exhaustion signals after remaining in the grip of bears for a prolonged period. The asset is expected to display a rebound as supply worries are bound to surpass the subdued demand impact. The ineffective demand-supply mechanism has been a major concern for steel prices. Now, escalating supply worries beyond China will boost the steel prices ahead.

It is worth noting that more than half of global steel demand comes from China due to heavy expenditure on infrastructure, construction, and real estate. A tad longer period of slowdown in China had dumped the demand for steel. No doubt, the steel supply was also impacted dramatically led by severe environmental regulations, and poor demand forced steel mill owners to shut down production processes.

Currently, ramping up energy prices in the eurozone have forced a halt in production as the rising production cost is demolishing profit margins. The steel mill owners are shutting down their smelters due to their inability to pass on higher cost impact. An inability to offset higher production costs led by soaring energy prices and accelerating interest rates is widening the deviation in the demand-supply mechanism. This is expected to bring a short-term rebound in the steel prices ahead.

Meanwhile, the largest steel-consuming economy, China has announced stimulus packages to scale up infrastructure spending in is major provinces, which will push the steel demand higher. Also, the declining price rise index in China will force the People’s Bank of China (PBOC) to deploy more liquidity into the economy.