Steel Price fades rebound from yearly low on China oversupply fears, risk-off mood

• Steel Price consolidates the previous day’s gains from five-month low.
• Fears of oversupply from China magnify after the latest trade numbers.
• Sour sentiment amid fears of recession, hawkish Fed also weigh on commodity prices.

Steel Price fails to extend the previous day’s corrective pullback from a five-month low as supply fears escalate. Also weighing on the metal is the market’s risk-off mood, as well as a firmer US dollar.

That said, the construction steel rebar on the Shanghai Futures Exchange fell 1.3%, while the hot-rolled coil dipped 1.1%. stainless steel rose 0.6%, per Reuters. The industrial metal recovered from the lowest levels since January by posting nearly 3.0% daily gains the previous day.

It’s worth noting that the latest data from the Shanghai Metals Market (SMM) raised oversupply fears by saying that China's stainless steel imports dropped 24% YoY in May, but exports rose 32.91% YoY. “In May 2022, stainless steel imports totaled 229,800 metric tonnes, down 9,176 mt or 3.84% month-on-month and 24.05% year-on-year,” add the SMM per Reuters.

SMM also cites the vigorously developing stainless steel industry in Southeast Asia, India and Vietnam by citing new plants opening one after another.

On the other hand, fears of the Fed’s aggression, as well as concerning the US recession. US President Joe Biden and Treasury Secretary Janet Yellen tried to convince markets that the recession fears aren’t inevitable. Further, Richmond Federal Reserve President Thomas Barkin said that there will be no rapid return for the U.S. economy to the experience of the previous decade of stable growth, jobs and inflation, Reuters reported.

While portraying the mood, the S&P 500 Futures drop 1.10% intraday to reverse the two-day rebound from the lowest levels since late 2020. It’s worth noting that the US Treasury yields also fail to cheer the risk-aversion as the benchmark 10-year Treasury yields dropped five basis points (bps) to 3.25% at the latest.

Given the fears of oversupply and recession, Steel Price may witness further downside. However, the shift in the market sentiment could offer breathing space to the bears if Fed Chair Jerome Powell again fails to impress bulls during his testimony on the bi-annual Monetary Policy Report.