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Chinese Companies May Face Iron Ore Collateral Call


From the Buzz & Banter: Traders may be forced to sell.

This article was originally posted on the Buzz & Banter where subscribers can follow over 30 professional traders as they share their ideas in real time. Want access to the Buzz plus unlimited market commentary? Click here to learn more about MVPRO+.

A horse, a horse, my kingdom for a horse!

-- Richard III, William Shakespeare

Those were the words famously yelled out in William Shakespeare's play Richard III. They may be heard again as Chinese traders, who
have been pledging iron ore for collateral, are being forced to sell a variety of assets to make up for the decline in iron ore's value.

China had long been one of the biggest producers of steel in the world as it upgraded its infrastructure and looked to build its way out of the 2008 recession, but using iron ore as collateral is not the same as using something like gold or copper. As the Wall Street Journal points out, "China consumes two-thirds of the seaborne iron-ore market, and futures for the mineral are far less liquid than for copper. So participants can't easily hedge their exposure to sudden price moves." Any volatility that we see in the price of iron ore, then, is a phenomenon that the Chinese have brought upon themselves.

So, quick question: How do you say "negative feedback loop" in Mandarin? We might have to learn it. Soon.

Twitter: @japhychron
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No positions in stocks mentioned.
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