China iron ore mountain a risk as financing crackdown bites

This will hurt. No money to fund empires in slowdown. Hard times ahead soon.

An Employee from a steel plant examines the quality of the iron ore at a railway freight station in Yingtan, Jiangxi province, November 11, 2010. Credit: Reuters/Stringer/Files

via Reuters
By Manolo Serapio Jr
15 April 2014

A crackdown in China on financing backed by commodities risks unleashing a flood of iron ore sales from tens of millions of tonnes of the raw material sitting at Chinese ports, raising the prospect of a renewed price slump.

Investors who have raised funds against mostly unhedged iron ore could be at risk in the event of a price fall due to sluggish steel demand, leading to forced sales as banks wind back loans against the raw material, analysts and traders warned.

Beijing's moves to tighten access to credit have led to buyers defaulting on about $300 million of soybean imports in recent weeks, while fears of an unravelling of copper financing deals helped push the metal to a three-and-a-half year low in March.

Iron ore prices have recovered after slumping 8 percent in a single day to a 17-month trough last month as steel prices plunged, but a fragile outlook for steel consumption in China and towering port stocks mean the steelmaking raw material remains vulnerable to another rout.

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