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11 Mar 2014
Distress in iron ore prices as defaults in China's steel sector mount
FXStreet (Bali) - On the back of a sharp nearly 10% decline in iron ore prices on Monday weighed on the Aussie, yet not as much as one would have thought.
According to Peter Fell from FXBeat: "Speculation is that a small steel mill in China may have defaulted last Friday and that iron ore traders were forced to liquidate stocks to repay loans secured by iron ore."
As Argus site reports: "The lack of steel demand growth in China this year and the start of defaults in the country’s steel sector led to the single largest drop in iron ore prices today."
Argus adds: "With demand fundamentals softening and steel mills and trading firms struggling with cash constraints, news of a default has led to the wholesale price declining. But markets are misreading the cause of the sell-off, a London-based analyst said. It is not China’s first bond default by a solar panel company last week that has set off credit worries in the steel sector, it is the potential first default of a steel mill on 7 March that is symptomatic of the industry.
Argus cited the analyst adding: “Right now no one knows where demand is or where to set it at, and you have this reverberation going on that default will lead to default...
"I think the mills are already defaulting, there is no question about that,” an international trader cited by Argus said. “Now what gets interesting is where do we go from here?”
Lastly, a China-based international trader said: “Those mills or traders that used iron ore as collateral to borrow money from banks, they have to cash out their stock and repay the bank.”
According to Peter Fell from FXBeat: "Speculation is that a small steel mill in China may have defaulted last Friday and that iron ore traders were forced to liquidate stocks to repay loans secured by iron ore."
As Argus site reports: "The lack of steel demand growth in China this year and the start of defaults in the country’s steel sector led to the single largest drop in iron ore prices today."
Argus adds: "With demand fundamentals softening and steel mills and trading firms struggling with cash constraints, news of a default has led to the wholesale price declining. But markets are misreading the cause of the sell-off, a London-based analyst said. It is not China’s first bond default by a solar panel company last week that has set off credit worries in the steel sector, it is the potential first default of a steel mill on 7 March that is symptomatic of the industry.
Argus cited the analyst adding: “Right now no one knows where demand is or where to set it at, and you have this reverberation going on that default will lead to default...
"I think the mills are already defaulting, there is no question about that,” an international trader cited by Argus said. “Now what gets interesting is where do we go from here?”
Lastly, a China-based international trader said: “Those mills or traders that used iron ore as collateral to borrow money from banks, they have to cash out their stock and repay the bank.”