Reuters reported that Chinese iron ore futures slumped more than 2% to a record low on Monday on faltering demand from top consumers as steel mills cut output and tight liquidity restrained their buying of the raw material.

Weaker steel prices have forced mills in the world’s largest producer to cut production, limiting their appetite for restocking the raw material. The tight credit crunch at year-end also dampened their buying interest.

The most active iron ore futures for May settlement on the Dalian Commodity Exchange hit a low of CNY 885 (USD 150) a tonne, the first time it has been below CNY 900 since the contract was launched in October. It pared losses to close at CNY 893 down 1.7%

An iron ore trader in Shanghai said that “Some mills have slashed production and they don’t want to replenish much inventories, while many also face very tight liquidity and don’t have money to buy more.”

The funding squeeze in China’s cash market showed little sign of easing on Monday, even after the central bank moved to reassure the market that liquidity was ample, while its tough stance is seen as an unofficial shift towards tighter monetary policy.

Steel demand in China remains tepid as the cold weather in northern regions slows construction activities, dragging down steel prices to a one-month low on Monday.