DOMESTIC iron ore traders are being starved of credit by banks reining in loan approvals and curbing letters of credit, industry sources say, as a clampdown on financing deals in the world’s top consumer of commodities gathers force.

    The moves come after China’s banking regulator has urged more checks on iron ore financing deals to cut default risks and amid an official probe into a suspected metal financing fraud in the Qingdao port. They also come as the steelmaking raw material’s prices have tumbled and port inventories are near record levels.

    The funding squeeze may force small traders to sell their stocks and pressure already weak prices. Iron ore has tumbled nearly 33 percent this year, hitting a 21-month low below US$90 a ton June 16, stoking banks’ concerns that smaller traders may fail to repay trade loans.

    “Tighter credit will exacerbate the oversupply situation in the market and will send iron ore prices even lower. The next level I’m looking at is US$80,” said Helen Lau, senior mining analyst at UOB-Kay Hian Securities in Hong Kong.

    The Qingdao port investigation further underscores lenders’ jitters over commodities financing. While the probe is centered on deals involving copper and aluminum, it could spread to iron ore, industry sources say.

    Domestic banks, the major lenders to the iron ore trade, have over the past two months raised their scrutiny of iron ore financing across the country, including in Shandong — one of China’s top trading hubs for the raw material — financial center Shanghai and top steel-producing Hebei Province, traders said. (SD-Agencies)