Steel price dwindles as hopes of more output, less profits join cautious mood ahead of US CPI

• Steel price retreats amid cautious markets, fears of less margin on the production front.
• Softer China inflation, economic slowdown concerns join pre-CPI anxiety to weigh on sentiment.
• The anticipated increase in output joins firmer coke prices to challenge profits of steel producers.

Steel price tracks other commodities to the south as market players await the key US inflation data on early Wednesday. Also exerting downside pressure on the metal are the softer Consumer Price Index (CPI) and Producer Price Index (PPI) data from China.

That said, the most active Steel rebar contract on the Shanghai Futures Exchange (SFE) renews the intraday low 4,050 yuan, down nearly 1.5%, while extending the previous day’s pullback from the monthly high. It’s worth noting that the prices of the hot-rolled coil and stainless steel futures on the SFE are also down 1.5% and 1.2% by the press time.

China’s headline CPI eased to 2.7% YoY in July versus 2.9% expected and 2.5% prior, whereas the PPI dropped to 4.2% compared to 8.0% market forecasts and 6.1% previous readings during the stated month.

On the other hand, recently increasing steel output propelled coke prices and hence eat away profits, which in turn could fade the incentive to increase steel production. The same joins China’s plans to reduce output citing environmental issues to keep steel buyers hopeful. Additionally, firmer China car production data also underpin optimism on the metal front.

However, hopes that Chinese steel output may increase in August, per SMM Survey, joins the market’s risk-off mood to pour cold water on the face of the metal bulls.

Elsewhere, chatters that the US tax, climate and health-care bill won’t be able to tame recession woes, as per JP Morgan, join the fears of more hardships for the Eurozone due to the Russian energy crisis to underpin the risk-aversion.

Amid these plays, the US 10-year Treasury yields struggle to extend the previous day’s rebound to 2.79%, around 2.786% by the press time. Also portraying the sluggish market is the S&P 500 Futures that remains unchanged at 4,125 at the latest, despite Wall Street’s losses.

Looking forward, the US CPI, expected to ease to 8.7% from 9.1% on YoY, as well as the CPI ex Food & Energy which is likely to rise from 5.9% to 6.1%, will be crucial for steel traders to watch for clear directions.