China Decides to Be Tougher on Iron Imports Loan

Author: Paul Ploumis29 Apr 2014 Last updated at 02:24:25 GMT

BEIJING (Scrap Monster): The China Banking Regulatory Commission gave warning to banks that it may get tougher over letters of credit for imports of Iron ore. As an immediate reaction to this decison, the iron ore futures in China plunged nearly 5 percent during Monday.

The tougher measures might be taken after May 1, International Workers’ Day. The rumors about strict measures had been circulating in the nation for about two months, after the iron prices became tumbled in late February due to the quick stock sale. Traders and Steel mills had used imports of iron ore to increase money because other sources of loan dried out. Thereby, mills benefited from lower international interest rates when compared with that in China.

Chinese companies had developed many creative ways to raise the money. However, the difficulty in transporting the bulk iron ore made it as a cumbersome material to increase the money and limited its use as a financing tool. The worrying factor was that the collapse of a heavily indebted mill could endanger a group of local bank outlets and local governments as well. This is because these steel mills were the largest taxpayers, debtors and employers.

Vice Secretary General of China Iron and Steel Association, Qu Xiuli told the reports that due to the difficulty in getting funding, the steel mills needed to take all types of ways including letter of credits. He also added that this is not against any regulations. Iron ore stockpiles at Chinese ports were at 109.55 million metric tonnes, which was the highest but when related to the import’s demand it was relatively low, as per Steelhome data.