Steel Defaults Seen by S&P as Yuan Ruins Ore Loans: China Credit

The Chinese steel industry’s ability to survive 1 billion yuan ($161 million) of losses per month without more defaults is under threat as a slump in iron ore and the yuan undermines a key source of financing.

The currency has weakened 2.4 percent this year and a measure of exchange-rate swings reached a record, prompting Goldman Sachs Group Inc. to predict funding that uses the steelmaking ingredient as collateral will drop over the next two years due to foreign-exchange hedging costs. Iron ore prices fell 11 percent in the past five months as cash shortages at closely held mills prompted what Morgan Stanley says is panic selling.