Steel price remains pressured amid China’s strong production, hawkish Fed bets

• Steel price remains pressured for the third consecutive day.
• China marked 3.0% increase in steel production, also reports upbeat Industrial Production, Retail Sales.
• Fed rate hike bets remain strong amid firmer US data, yields.
• Metal traders can keep bearish bias intact ahead of next week’s FOMC.

Steel price holds lower ground, printing a three-day downtrend heading into Friday’s London open, as recession woes join China’s higher steel output. Also weighing on the metal prices could be the market’s calls for the US Federal Reserve’s (Fed) aggression.

That said, the most active contracts of steel rebar futures on the Shanghai Futures Exchange (SFE), as well as the London Metal Exchange (LME), dropped near 1.0% and 0.35% in that order by the press time.

“The world's top steelmaker churned out 83.87 million tonnes of the metal last month, according to data from the National Bureau of Statistics (NBS) on Friday, up from 81.43 million tonnes in July,” per Reuters. On a bit broader horizon, the steel output in China during the January-August period dropped 5.7% to 693.15 million tonnes.

China’s Industrial Production rose 4.2% YoY versus 3.8% expected and prior while Retail Sales rose past 3.5% market expectations and 2.7% prior to 5.4%. Reuters also said, “China's new home prices fell in August at the fastest pace since November 2021 as its property sector was plagued by weak demand, a mortgage boycott and strict COVID-19 restrictions.”

Other than the higher steel production amid the economic slowdown fears, the risk-negative headlines surrounding China and Europe also propel the USD/CNH prices. That said, Reuters came out with the news stating that US President Joe Biden to hit China with broader curbs on US chip and tool exports. Previously, Bloomberg ran a piece suggesting that China is likely to witness harder days than it witnessed in 2020. On the same line was the news surrounding the Sino-American tussles and the People’s Bank of China’s (PBOC) inaction.

Elsewhere, the latest readings of the hawkish Fed bets from the CME’s FedWatch Tool suggest the market priced in the Fed’s 0.75% and 1.0% rate hikes during the next week’s Fed meeting with 77% and 23% chances. The firmer odds could be linked to the US Retail Sales which rose 0.3% in August versus 0.0% expected and July’s revised down -0.4%. Further, NY Fed Empire State Manufacturing Index improved to -1.5 in September compared to -31.3 in August and the market expectation of -13. Alternatively, Philadelphia Fed Manufacturing Index declined to -9.9 for the said month compared to 2.8 expected and 6.2 prior. Additionally, US Industrial Production slid to -0.2% in August versus a market expectation for an expansion of 0.1% and downwardly revised prior to 0.5%.

Moving on, higher output, recession woes and hawkish Fed bets could weigh on the steel prices ahead of the preliminary readings of the Michigan Consumer Sentiment Index (CSI), expected 60 versus 58.2 prior. Above all, next week's Federal Open Market Committee (FOMC) will be a crucial event for the metal traders to watch for fresh impulse.