Steel price rebounds on covid updates, comments from Fitch on China

• Steel price pauses recent downside around one-week low, mildly bid of late.
• Fitch expects no further deterioration in China’s steel profitability.
• China’s Chengdu and Dalian lift covid-led lockdowns, PBOC cuts 14-day reverse repo rate.

Steel price rebound from nearly eight-day low on cautious optimism surrounding China. Also favoring the metal buyers could be the absence of Japan and the UK which allows the quote to brace for this week’s key monetary policy meetings. Furthermore, the People’s Bank of China’s (PBOC) latest action also helps the industrial metal prices to remain firmer.

That said, prices of the most active steel rebar contract on the Shanghai Futures Exchange (SFE) prints nearly 0.50% intraday gains around 3,711 offshore Chinese yuan by the press time of Monday’s Asian session.

That said, the Chinese central bank lowers the 14-day reverse repo rate by 10 basis points (bps) to 2.15%. “With no reverse repos maturing on Monday, China central bank injects 12 billion yuan on the day,” per Reuters.

On the other hand, global rating agency Fitch said, “Do not expect further deterioration in China's steel sector profitability following production cuts in response to weak demand,” per Reuters. Fitch also mentioned, “We expect production to recover from September as construction enters peak season.” It should, however, be noted that Fitch does not expect a strong recovery in steel demand, which in turn could keep grinding the metal prices lower.

Elsewhere, US President Biden said, “I'm more optimistic than I have been in a long time.” The national leader also stated that they are going to get control of inflation. On the same line are the covid updates from China as it unlocks Dalian and Chengdu cities while witnessing zero coronavirus cases in Beijing and one, versus zero the previous day, outside Shanghai’s quarantine zone.

However, US President Biden’s readiness to back Taiwan in case China attacks Taipei and the hawkish hopes for the Fed seem to weigh on the steel price ahead of the key monetary policy announcements.

It’s worth noting that a daily off in the UK and Japan join a light calendar to restrict the market moves on Monday, which in turn challenges the metal’s corrective bounce.