Steel price fades recovery amid slowdown fears, pre-Fed anxiety

• Steel price struggles to extend latest recovery amid pre-Fed caution.
• Hopes of more demand from China, supply crunch keep buyers hopeful.
• World Crude Steel output slumped in H1 2022, softer inventories in China add to the bullish bias.

Steel price retreat from intraday high as market sentiment dwindles ahead of the Federal Open Market Committee (FOMC) meeting in early Wednesday. Also challenging the metal buyers are concerns about the Chinese steel mills’ re-start, as well as fears of recession. However, a notable decline in the metal’s global output during the first half of 2022 (H1 2022), as well as an end of monsoon in China, keeps the bulls hopeful.

That said, prices of the steel rebar’s most active futures on the Shanghai Futures Exchange (SFE) extend pull back from the daily open of 3,895 yuan per metric tonne (MT) to 3,820 yuan per MT.

World Steel Association reported a 5.5% fall in the global crude steel production during H1 2022 to 949.4 million tonnes. The report cited a slump in the output of the key producers in Asia and Oceania as a major catalyst for the fall in steel output.

It’s worth noting that the end of China’s monsoon season and chatters that the inventories at the largest metal consumer, backed by Reuters, also underpinned the previous buying of the metal. On the same line, hopes of an easing in the US-China tension and a rebound in the auto demand added strength to the quote’s recovery moves.

US President’s readiness for a virtual meeting with his Chinese counterpart Xi Jinping, on Thursday, appears to have recently underpinned the market’s cautious optimism.

Elsewhere, Goldman Sachs (GS) warns about the risk to the iron ore prices emanating from China’s property market, which in turn could drown the steel price due to being the major ingredient.

“The crisis engulfing China’s property sector will help swing the iron ore market to a significant surplus over the second half of the year and push prices sharply lower,” mentioned GS.

Looking forward, chatters surrounding the Xi-Biden talks and China’s recovery, as well as steel producers’ ability to stock more, could entertain the metal traders. Also important will be Fed Chair Jerome Powell’s capacity to tame inflation and still keep the growth prospects intact.