As the iron ore price limbs back to normalcy after slumping 8% last month the misery is trailing with stockpile at the port touching a record high of 108 million tonnes. Normally the inventory remains in the range of 70-75 million tonnes.

A crackdown in China on financing backed by commodities risks unleashing a flood of iron ore sales from mountain of raw material sitting at Chinese ports, raising the prospect of a renewed price slump.

Investors who have raised funds against mostly un-hedged iron ore could be at risk in the event of a price fall due to sluggish steel demand, leading to forced sales as banks wind back loans against the raw material.

The steel sector is now taking a hit from China's crackdown on high-risk shadow banking activity as well as curbs on lending to shape up sectors plagued by excess capacity.

Un-hedged stocks which have been used as collateral by the mills to raise loans for get credit from banks risks being exposed to price volatility as well flooding the market in eventuality of dip in prices. Banks taking conservative postures the traders and mills are finding increasingly difficult to open LCs or get credit lines. Although this tool is primarily responsible for unusual surge in iron ore buying last year despite slow demand it likely to prove its own nemesis.

Although finished steel price levels recently showed buoyancy (2%) recently backed by government measures to boost steel consumption in infrastructure and railway line expansion and modernization its sustainability is questionable with core consuming reality sector sulking . So far the balance is critically maintained but it likely to tilt the other way if some credit easing and new investment proposals are not announced quickly.