Reuters reported that China's iron ore futures slumped nearly 3% to a contract low putting spot prices on course to drop to their weakest level since 2009, as tighter credit curbed purchases of imported cargoes.
Spot iron ore prices have fallen more than 34% this year. The rout, fuelled by excess supplies, has forced Chinese steel mills to resell some cargoes back to the market as global miners kept on ramping up output.
While Chinese demand for the raw material used to make steel has remained firm, there is more than enough supply in the market and tighter access to bank loans has also made it tougher for buyers to secure fresh cargoes.
A trader for an international company in Singapore said that "Steel mills are offloading their long-term contract to us, they are do not want to take cargo from miners as credit is tight. Credit is so tight that mills cannot afford to open letters of credit (LCs) for the entire capesize cargo, so they prefer to buy from the ports."
Chinese banks have been more reluctant in granting loans following May's suspected financing fraud at the Qingdao port. Buyers can purchase smaller volumes of iron ore stored at China's ports with cash.
Inventory of imported iron ore at China's major ports stood at 109.7 million tonnes as of August 22, not far below a record high of 113.7 million tonnes reached in early July, based on data from industry consultancy SteelHome.
Iron ore for January delivery on the Dalian Commodity Exchange was down 2.7% at CNY 625 per tonne by midday. That was just a tad off a session low of CNY 624 the weakest for a most-active contract since the bourse launched the product in October last year.
According to data compiled by Steel Index, iron ore for immediate delivery to China fell 0.8% to USD 88.20 per tonne, its eighth straight day of decline. That was the lowest for iron ore since September 2012 and within striking distance of that year's low of USD 86.70. A further slide would bring the price to its weakest since 2009.
