Steel mills and traders holding iron ore as collateral for financing are rushing to sell to repay loans, traders said, piling more pressure on the steel-making raw material that has lost over one-fifth of its value this year.

Shanghai steel futures dropped for a fourth day to near record lows on Tuesday, a day after spot iron ore prices fell the most since 2009 amid mounting signs of an economic slowdown in top consumer China.

Chinese steel mills and traders were seeking to delay delivery of iron ore cargoes, traders said.

Iron ore producers Rio Tinto and BHP Billiton said they had not seen any postponement or cancellation of shipments.

"Steel mills and traders are telling BHP and Rio Tinto to delay their shipment from April to May. The reason is all their financing is stuck at the port so they can't open new letters of credit," said an iron ore trader in Singapore.

The shipments involved around 2 million tons of iron ore, the trader said.

About 25-30 percent of iron ore stockpiled at major Chinese ports is tied to financing deals and owners of the cargoes were rushing to liquidate them to repay loans to banks, traders said.

The inventory of imported iron ore at the ports stood at a record high 105 million tons last week, according to industry consultancy Steelhome.

The increasing use of iron ore for financing has been used as an explanation for why China has maintained its voracious appetite, even as a slowing economy threatens to curb demand for steel.

BHP Billiton iron ore division head Jimmy Wilson said at an iron ore conference in Australia that there had been no defaults arising from the deterioration in prices.

Iron ore entered bear market territory on Monday after an 8.3 percent drop - the steepest fall since August 2009 - brought its year-to-date loss to nearly 22 percent.

Reuters