The rot which set in last weekend on weak economic cues in China has triggered chain reaction in credit based transactions.

One of the prime reasons for whirlwind pick up in iron ore imports in China touching an all-time high of 87 million tonne in January was the use of stocks as collateral for credit from Banks by steel mills.

It is learnt that due to sudden crash in Iron ore price level by 10% last Monday and dipping futures for both iron ore and rebar steel mills and traders are in quandary to liquidate stocks and repay loan.

Iron ore stockpiles have touched an abnormally high level of 105 million tonne. About 25% to 30% of all iron ore stockpiled at major Chinese ports is tied to financing deals and owners of those cargoes were rushing to liquidate them to repay loans to banks.

The increasing use of iron ore for financing had been used as an explanation for why China had been maintaining its insatiable hunger for the raw material even as an economic slowdown threatens to hit steel demand.

It is likely to accentuate the misery by accelerating the downslide in the coming days.