August 28, 2014 / 5:12 AM / 5 years ago

Iron ore rout extends as Dalian futures sink 2.7 pct amid tight credit

* Spot iron ore on course to fall to lowest since 2009
    * Shanghai rebar futures drop to record low

    By Manolo Serapio Jr
    SINGAPORE, Aug 28 (Reuters) - China's iron ore futures
slumped nearly 3 percent to a contract low on Thursday, 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 percent 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.
    "Steel mills are offloading their long-term contract to us,
they are do not want to take cargo from miners as credit is
tight," said a trader for an international company in Singapore.
    "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," he said.
    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 Aug. 22, not far below a record
high of 113.7 million tonnes reached in early July, based on
data from industry consultancy SteelHome. SH-TOT-IRONINV
    Iron ore for January delivery on the Dalian Commodity
Exchange was down 2.7 percent at 625 yuan ($102) a
tonne by midday. 
    That was just a tad off a session low of 624 yuan, the
weakest for a most-active contract since the bourse launched the
product in October last year.
    Iron ore for immediate delivery to China .IO62-CNI=SI fell
0.8 percent to $88.20 a tonne on Wednesday, according to data
compiled by Steel Index, 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 $86.70. A further
slide would bring the price to its weakest since 2009.
    A trader based in China's eastern Shandong province said
trading companies are also having difficulty opening LCs with
    "Even if they do get LCs, it's a very slow process," said
the trader who is sitting on 200,000 tonnes of iron ore stocks
at ports.
    Further losses in steel prices also soured sentiment towards
iron ore. The most-traded rebar for January delivery on the
Shanghai Futures Exchange fell 1.2 percent to 2,941
yuan a tonne, after hitting a record low of 2,940 yuan.
 Rebar and iron ore prices at 0436 GMT
 Contract                          Last    Change   Pct Change
 SHFE REBAR JAN5                   2941    -36.00        -1.21
 DALIAN IRON ORE DCE DCIO JAN5      625    -17.00        -2.65
 SGX IRON ORE FUTURES SEP         87.31     -0.65        -0.74
 THE STEEL INDEX 62 PCT INDEX      88.2     -0.70        -0.79
 METAL BULLETIN INDEX             88.29     -0.73        -0.82
 Dalian iron ore and Shanghai rebar in yuan/tonne
 Index in dollars/tonne, show close for the previous trading day
 (1 US dollar = 6.1420 Chinese yuan)

 (Reporting by Manolo Serapio Jr.)
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