Steel prices extend recovery as supply squeezes in Europe, China announces more stimulus

• Steel prices have recovered sharply as prospects are indicating a decline in steel supply from Eurozone.
• The PBOC will provide 200 billion yuan to commercial banks to boost loans to companies.
• The dual support of stimulus packages and lower PLR will accelerate infrastructure spending.

Steel prices have widened their recovery after remaining in the negative trajectory for a major time period this year. The metal is gaining strength as escalating supply worries from the Eurozone is trimming the demand-supply divergence.

Energy prices are soaring like there is no tomorrow in the old continent after Russia cut off the gas supply from its main Nord Stream 1 pipeline under the Baltic Sea in response to western sanctions. This has forced the steel mill owners to shut down their smelters as rising production costs have demolished the profit margin structure. The companies are failing to achieve the break-even level, which has forced them to halt their production processes.

Meanwhile, the largest consumer of steel, China has announced more stimulus packages to spurt the growth prospects. China’s State Council announced that the People’s Bank of China (PBOC) will provide more than 200 billion yuan ($28.7 billion) in special lending funds to commercial banks to boost loans to companies, Xinhua News Agency reported.

Also, the People's Bank of China (PBOC) is looking to cut their Prime Lending Rates (PLR) further to deploy more liquidity into the economy. The dual support of stimulus packages and lower PLR will accelerate spending on inflation, construction, and expansion of production capacities. It will boost the demand for steel and other base metals due to their immense requirement to cater to manufacturing and production activities.