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China steel, iron ore futures hit record lows on lending curbs

China steel, iron ore futures hit record lows on lending curbs

Tuesday, 25 February 2014

Chinese steel and iron ore futures on Monday slumped to their lowest levels since they were launched following media reports of tighter lending to steel and other property-linked sectors, dimming the outlook for demand.

The official Shanghai Securities News, among other publications, reported that some banks had started to curb loans to steel, cement and other property-related sectors. Several banks have issued denials, but the report has sent Chinese equities and most industrial commodities into a tailspin.

The most-traded rebar for May delivery on the Shanghai Futures Exchange hit a session low of 3,308 yuan ($540) a tonne, its weakest since the bourse launched rebar futures in March 2009. It closed down nearly 2 percent at 3,326 yuan.

Iron ore for delivery in May at the Dalian Commodity Exchange touched a trough of 817 yuan a tonne, its lowest since its October launch, and lost 3.4 percent to settle at 821 yuan.

“Tighter lending is making markets jittery and will force traders to sell down their inventory to get their cash back,” said Helen Lau, senior analyst at UOB-Kay Hian Securities in Hong Kong.

“Some mills will have to close down because they can’t continue producing as the banks can’t give them the cash they need.”

The lending curbs may also be part of China’s campaign to rein in risk in the property sector. In January, the country’s housing prices grew at a slower rate for the first time in 14 months.

The credit curbs have pushed Chinese mills and traders to use iron ore as a loan collateral, inflating imports and stockpiles of the raw material to record highs.

Inventory of iron ore at China’s major ports reached an all-time peak of 100.9 million tonnes as of Friday, industry data showed, trumping a previous record set a week ago.

Stocks of steel products held by Chinese traders also reached near record levels last week. Traders may be forced to liquidate those stocks which would increase supply and pressure prices further, said Lau.

The volume of five major steel products among Chinese traders stood at 20.59 million tonnes at the end of last week, according to data from industry consultancy Mysteel, up nearly 4 percent from the previous week and near the record 22.45 million tonnes reached in March last year.

Inventory of rebar, a construction steel product, stood at around 10 million tonnes, the data showed.

The weakness in the steel market is likely to cut appetite for spot iron ore cargoes further.

Iron ore for immediate delivery to China .IO612-CNI=SI dropped 0.4 percent to $122.40 a tonne on Friday, moving closer to a seven-month low of $120 reached earlier in the month, data from compiler Steel Index showed.

The price of iron ore, China’s top import commodity by volume, slipped 0.6 percent last week, falling for a sixth week out of seven.

Source: Reuters (Reporting by Manolo Serapio Jr.; Editing by Joseph Radford)