Steel price drops on China’s covid, emission led production curbs

• Steel price extends the week-start pullback from a two-week top.
• China announces further covid-led manufacturing restrictions in Shenzhen.
• Output restrictions to limit emissions, talks of industry-wide capacity reduction targets also weigh on metal prices.
• Hawkish Fed bets join mixed concerns surrounding Beijing to keep sellers hopeful.

Steel price remains pressured on early Tuesday, drowned by grim concerns surrounding the largest consumer China, as well as fears of economic slowdown due to the aggressive central bank actions.

That said, steel rebar prices on the Shanghai Futures Exchange (SFE) fell 3.1% while hot-rolled coil dropped 2.4%. Stainless steel lost 1.2% on a day by the press time.

Steel prices stretched losses after authorities in China's southern city of Shenzhen shut the world's largest electronics market of Huaqiangbei and suspended service at 24 subway stations on Monday in a bid to curb a COVID-19 outbreak reported Reuters.  Additionally, steel production control to curb emissions in China also dents demand for metal.

It should be noted that Reuters also came out with the news suggesting that in Tangshan, China's biggest steel-producing city, authorities and mills reportedly met on Friday to discuss capacity reduction targets. “To meet its target, Tangshan's average daily output for the rest of the year should be less than 314,700 tonnes, compared with 352,300 tonnes over January-July, based on a calculation by industry information provider Mysteel,” per the news.

Elsewhere, Politico came out with the news suggesting the Biden administration to ask congress to approve a $1.1 billion arms sale to Taiwan, which in turn appears to have triggered the latest run-up. Before that, the movement of the US vessels in the Taiwan Strait and American diplomats’ visits to Taipei teased China. On the same line were concerns raised by Financial Times (FT), over the mounting pressure on Chinese banks. “Chinese residential property owners are rushing to pay off their mortgages early, heaping pressure on commercial banks that were already struggling to identify attractive lending opportunities,” mentioned FT.

On a broader front, fears of economic slowdown, amid the aggressive rate hikes from the global central banks, also exert downside pressure on the steel price. That said, the CME’s FedWatch Tool signals a 72.5% chance of the Fed’s 75 basis points (bps) rate hike in September.