Desperate Chinese steelmakers dump iron ore stocks
By Ruby Lian and Manolo Serapio Jr
SHANGHAI/MANILA Dec 4 (Reuters) - Cash-strapped Chinese steel mills are dumping iron ore stocks, selling at a loss to shore up cash flow in the latest sign of the sector's worsening crisis, steel mill and trader sources said.
The sale of port inventories is deepening a rout in iron ore prices which have already tumbled 25 percent over the past two months as the sector struggles with overcapacity, falling demand for steel from real estate to shipbuilding, and tight credit.
This week, prices for the raw material hit their lowest in a decade at $40.30 a tonne .IO62-CNI=SI, while futures contracts <0#SZZF:> fell to record lows of $33 a tonne for 2016. Shanghai rebar steel prices also sank to all-time lows.
"The market declines have been accelerated by steel mills who are selling iron ore at low prices because they are short of cash," said an iron ore trader in Beijing.
Steel mills are facing a cash crunch after authorities urged banks to cut credit to oversupplied industries, with privately owned mills hardest hit. Tangshan Songting Iron & Steel, one of the country's big privately owned steel mills, last month closed its doors, but others are desperate to hang on.
Mills with long-term supply contracts with big miners have already cut stockpiles of the steelmaking raw material at their factories to a minimum, preferring to buy hand to mouth due to shaky downstream demand and to minimize cash use.
Now, loss-making mills are resorting to selling iron ore bought with letters of credit in a last-ditch effort to maintain cashflow for production as they seek to repay bank loans, many due at year-end, four traders and steel mill executives said.
Mills that survive will try to get new credit facilities for next year, they said. Continuación...