Iron ore financing under investigation
May 8, 2014 Category Automotive Metals & Minerals, Metals
The China Banking Regulatory Commission (CBRC) has urged local authorities and banks to step up an investigation into iron ore financing deals in a bid to minimize default risks. Trade sources said Chinese banks started to tighten loan requirements for steel mills and trading firms seeking credit for iron ore imports, due to concerns over their inability to repay loans, particularly as growth in demand for metals has slowed. Iron ore inventories at main ports have hit record levels of more than 100 million tons since mid-February, putting banks on alert that any big collapse in prices might cause default risks. China’s total iron ore port inventory reached 112.63 million metric tons on April 25, up 66% compared with the same period last year, according to data from the Shanghai-based industrial information provider Mysteel. A reasonable port inventory is about 65 million tons, which means a large number of ore traders have been stockpiling the material, waiting for prices to rise. Up to 36.07 million tons of it belong to traders who are facing possible tightening of credit regulations, according to Mysteel. It has been reported that the CBRC may raise credit collateral requirements from the current 15% to 30% in May. Yu Chen, Iron Ore Analyst with Mysteel, said that if that is the case, traders will be pushed to sell iron ore to increase their cash flow, which will lead to a round of price cuts. With high inventory and weak demand, the imported iron ore price declined 5.52%, or USD7.47 a ton, to USD127.95 a ton in the first quarter. Yu said that with the CBRC’s new collateral requirements, the price of iron ore likely will fall below USD100 a ton in the near future.
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