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Local Chinese media reported that a Zhejiang-based property development company, Xingrun Properties, was on the brink of collapse after defaulting on a loan worth hundreds of millions of dollars.
Standard Bank analyst Melinda Moore said in a research note on Tuesday that the Chinese steel industry’s underlying weakness was due to instability in end-user sectors.
“The real reason why the Chinese steel sector’s performance has been so dire so far this year is due to the sickness of downstream sectors, particularly property,” Moore said.
Property developer sales in China fell by more than 2% from January to February compared with levels seen in 2013, Standard Bank said. It noted that property prices in several cities, including Beijing, had also dropped.
“All these issues combined are gathering more prominence today in China, keeping equities nervous,” Moore said.
Physical iron ore prices failed to react to the rumoured property-sector default, remaining largely unchanged from levels seen on Monday at $108.82 per tonne.
Iron ore swaps prices pushed up firmly, although brokers said that the recovery in prices could be due to profit-taking by banks after last week’s price volatility.
Weakness among end-users and the potential bankruptcy of a Chinese property developer could put further pressure on iron ore and steel prices, economic analysts at Standard Bank said on Tuesday March 18.