Steel Price bounces off five-month low as recession fears battle softer USD

• Steel Price remains on the back foot despite the latest rebound.
• Fears surrounding China’s economic growth, central bank aggression weigh on prices.
• Iron Ore weakness, fears of more output also strengthen bearish bias.
• Steel Price drops to five-month low as recession fears supersede softer USD

Steel Price remains depressed around the lowest levels since January, despite the latest bounce, as traders’ fears of receding demand from China supersede the immediate benefits from the downbeat US dollar. Also exerting downside pressure on the metal could be the softer iron ore and a metal basket.

That said, the Shanghai exchange's most-active stainless steel contract rises more than 3%, after refreshing the multi-day low recently, while Steel Rebar Futures on the London Metal Exchange (LME) remain inactive at around $692.50 per tonne.

Iron ore futures, the key component of steel, also portray the bear’s dominance by posting a 3.7% daily loss around the lowest levels since March 02. The metal slumped around 11% the previous day as fears of China’s economic recession grew stronger.

The US Dollar Index (DXY) extends the week-start losses to 104.30, down 0.20% intraday by the press time, which in turn allows the commodities and Antipodeans to cheer the risk-on mood. The greenback’s weakness could be linked to the recently downbeat US data and softer US inflation expectations, as per the 10-year breakeven inflation rate per the St. Louis Federal Reserve (FRED) data. It’s worth noting that the US inflation expectations refreshed monthly low on Friday.

Elsewhere, headlines suggesting an improvement in China’s covid conditions and the US readiness to ease the Trump-era tariffs on the dragon nation seem to probe the Steel Price downside. However, the fears of economic slowdown in the world’s biggest metal consumer gather momentum and exert downside pressure on the commodities. "China's strict 'zero-COVID' policy of constantly monitoring, testing and isolating its citizens to prevent the spread of the coronavirus has battered the country's economy and manufacturing sector," said Reuters.

Additionally, China’s increased production adds to the bearish bias over the Steel Price. “The maker of half the world’s steel churned out 231 million tons between January and March, up almost 10 percent from a year earlier and the highest for any first quarter on record. Production in March climbed 10 percent to 80.3 million tons, according to data from the statistics bureau,” said Bloomberg in its latest steel research.

On the other hand, Peru and Australia also brace for higher production and weigh on the metal prices.

Looking forward, headlines from China and Chicago Fed National Activity Index and the US Existing Home Sales for May will entertain intraday traders but major attention will be on the full markets’ reaction to the latest shift in the risk appetite. Additionally, Fed Chair Jerome Powell’s Testimony on the bi-annual Monetary Policy Report will be important too.