With steel production set to resume in China, what impact will it have on the Indian metal sector?

As China is a major consumer of Steel and Iron Ore, such news certainly lifts the mood of the Indian metals sector and the metal stocks.

Tuesday turned out to be a terrific one for China’s benchmark iron ore futures, as it shot up nearly 10% and hit the upper circuit limit. The news which propelled the iron ore futures price is that the steelmakers are set to resume production after strict controls in past months following government protocols.

The TSI IRON ORE CFR CHINA INDEX FUTURES was in a bearish phase since May and is currently down by 56% since touching that figure. The iron ore futures traded at 103, up 9.19% on Tuesday, with the hope of rising steel production. The futures consolidated in a narrow range for quite some time before ending in green for the past three trading sessions. The prices have indeed fallen significantly and rapidly, but it remains to be seen whether this is a sign of reversal or just a dead-cat bounce!

The first resistance as per the Fibonacci retracement stands at 119.25 (23.6% reversal) and the next resistance lies at 141 (38.6% reversal). However, we see no significant change in the volumes to validate the point of reversal. Market participants must wait for more clarity before taking any fresh positions.

As China is a major consumer of Steel and Iron Ore, such news certainly lifts the mood of the Indian metals sector and the metal stocks. Nifty Metal is up by 3.22% on Tuesday thereby outperforming all the broader indices. JSW Steel and Tata Steel are up 4.76% and 3.72%, respectively and are the top two gainers in the Nifty 50 in Tuesday's session as well. The index is down by almost 11% from its all-time high and it looks to gain momentum as it tries to close above its 100-DMA. If the Chinese futures continue to rally based on the news flow, we can find the metals stocks to outperform in the coming days.