Steel price snaps four-week uptrend as recession woes mount
- Steel prices drop for the second consecutive day, remains pressured around monthly low.
- Fears that China’s heatwave and covid conditions will weigh on profits from steel manufacturing challenge the buyers.
- Recession woes, higher prices of ingredients also test the metal buyers.
Steel price extends the previous day’s pullback from the weekly top, as bears attack the monthly low, amid a cluster of catalysts weighing on the quote during Friday’s Asian session. With this, the industrial metal is up for the first weekly loss in five.
Steel rebar futures on the Shanghai Futures Exchange (SFE) slipped 0.3% while hot-rolled steel coil shed 0.6% by the press time. Further, Stainless steel dropped the most with 1.2% daily loss at the latest.
China’s electricity rationing, due to a heatwave in the top steel-producing region, has forced some mills to halt operations. The same joins the recent increase in the dragon nation’s coronavirus count to add to hardships for the metal traders. Also, the US dollar strength and fears of global recession, not to forget the Sino-American tension over Taiwan, are extra catalysts that exert downside pressure on the steel price.
That said, Bloomberg came out with the news that Chinese President Xi Jinping and Russian President Vladimir Putin plan to attend a Group of 20 Summit to be held in Bali later this year, Indonesian President Joko Widodo said in an interview. The news also mentioned that it was the first time the leader of the world’s fourth-most populous nation confirmed both of them were planning to show up at the November summit. The news adds to the market’s anxiety and fears of more drama, which in turn contributed to the flight to safety and helped the US dollar to refresh the monthly high after the release.
The greenback’s latest gains could also be linked to the upbeat data and hawkish Fedspeak. Philadelphia Fed Manufacturing Survey rallied to 6.2 for August versus -5 expected and -12.3 prior while the weekly Initial Jobless Claims dropped to 250K, below 265K market consensus and 252K revised prior. Following the upbeat data, San Francisco Fed President Mary Daly mentioned that the (Fed) will continue to raise the rates to "right-size it." The policymaker added that either 50 basis points or a 75 basis points hike would be appropriate while signaling the move for the September rate decision. However, Minneapolis Federal Reserve Neel Kashkari mentioned that, per Reuters, he does not believe the county is currently in a recession. Further, the all-time hawk St. Louis Fed President James Bullard said he is leaning towards another 75 bps rate hike in September.
“Trading in futures contracts tied to the Fed's policy rate suggested investors see that rate rising to a range of 3.50%-3.75% by March of next year, but then starting to fall a few months later,” said Reuters. That said, the current range of the Fed’s benchmark rates is 2.25-2.50%.
To sum up, the recent jump in hawkish Fed bets joins the pessimism surrounding China to challenge steel traders.