From Platts:
Chinese iron ore importers on Monday denied they were under pressure to sell their port stocks so that they repay their debts to the country’s banks, refuting recent local media reports.
The importers added that the price of the more than 100 million mt of iron ore inventories across the Chinese ports, was unlikely to plunge in the near term because they were not under pressure to sell.
…Market sources, however, admitted that the Chinese banks have been more cautious this year in both issuing letters of credit and raising the loan amounts to steel and iron ore trading houses. But one of them said the banks have not been “sending out the ultimatum to collect debts.
“Meanwhile, a Beijing-based iron ore trader pointed out that a few “Chinese steel trading houses went bankrupt in the last few months or bosses ran away, failing to pay off their bank loans, which have led banks to be extra careful.
“But those are individual cases, and we can still survive [despite] this and we are in no rush to sell our port inventories for cash to pay off debts,” she added.
Chinese banks have raised the ratio of the deposit for a letter of credit to 30% of the total contract value from 15%, the trader said, which has prompted her company to reduce speculative trading in iron ore.Other market sources agreed, adding, that state-owned steel mills or trading houses still have a high chance of getting financing but small players may face greater difficulty.
With respect, I could have told you this. The problem with the port pile is not that it will trigger a sell-off by itself. Rather, it exaggerates underlying market dynamics. Last year, as prices rallied it drove them higher for longer.
Now, as the trend has reversed, any rally runs into the overhang and if prices fall then insufficient collateral values could trigger margin squeezes for traders, forcing them to dump stock at the worst time and exaggerating downside risk.
Dalian futures are down roughly 1% and rebar futures half that today.
