Iron ore price craters 8%
China's steel industry in full panic mode as rumours of large mills collapsing see iron ore price and imports plummet.
The benchmark import price of 62% iron ore fines at China's Tianjin port on Monday dropped $9.50 or 8.3% to $104.70 a tonne.
It was the worst one-day decline since the 2008-2009 financial crisis and the steelmaking raw material is now trading at its lowest since October 2012.
The iron ore price is down just shy of 22% since the start of the year, according to data from the The Steel Index.
The sell-off in iron ore – and other industrial metals – intensified after trade data released on Saturday showed Chinese exports slid a stunning 18.1% year-on-year, down from double digit growth in January, sparking fears that the slowdown in the world's second largest economy is worse than feared.
Iron ore was hit hardest because of a worsening crisis in China's steel sector which consumes more than two-thirds of the seaborne iron ore trade and forges almost as much steel as the rest of the world combined.
The globe's most active steel future – Shanghai rebar – fell 4% on Monday to an all-time low for the contract.
At the same time Chinese imports of iron ore fell back sharply from its record-breaking pace, dropping by more than 25 million tonnes to 61.2 million tonnes in February.
The drop in imports did not translate into lower inventories at the country's ports which swelled to a new high of 105 million tonnes according to Steelhome, a consultancy.
Last week Choari Solar became the first Chinese company in history to default on a corporate bond, sending shivers through China's corporate world.
Many observers believed that the country's steel sector would be the first to make financial history, given its chronic lack of profitability and overproduction, and rumours on Friday caused widespread panic in the industry.
"The Chinese steel industry is in total disarray today, following rumours surfacing of the first debt defaulting mill (3.6m tonnes per annum) from Shanxi province shutting 5-6 furnaces," Melinda Moore, analyst at Standard Bank told the FT on Friday:
"And this panic could potentially reverberate further; firstly into another destock across both physical steels and iron ore . . . but also beyond, into other commodities and other sectors more generally."
The stockpiled iron ore is not being put to industrial use, but because of tight credit conditions inside China the ore is being used as collateral to secure loans.
About 40% of the iron ore at China’s ports are part of finance deals, Mysteel Research estimates while official news outlet Xinhua reports about one-third of China’s 200,000 steel trading firms could collapse as the loan crisis deepens.
Loans to the industry peaked around 200 billion yuan or nearly $33 billion following China's economic stimulus program in 2008 following the global financial crisis.