* Spot iron ore on course to fall to lowest since 2009
* Shanghai rebar futures drop to record low
* Fortescue shares down 4 pct; Rio, BHP at multi-week lows (Recasts, updates prices)
By Manolo Serapio Jr
SINGAPORE, Aug 28 (Reuters) - Spot iron ore hit a two-year low on Thursday and was on course to fall to its lowest since 2009 as tighter credit in China curbed purchases of imported cargoes, and iron ore futures in Dalian slumped to a contract low.
Spot iron ore prices have fallen by more than 34 percent this year as global miners have ramped up output, causing oversupply. The rout has forced Chinese steel mills to resell some cargoes back to the market, adding to the supply excess.
Shares of top Australian iron ore producers slid, with Fortescue Metals Group down 4 percent and bigger rivals Rio Tinto and BHP Billiton each dropping more than 1 percent to their lowest since July.
While Chinese demand for the raw material used to make steel has remained firm, there is more than enough domestic supply in the market. Tighter access to bank loans, meanwhile, has made it tougher for buyers to secure fresh import cargoes.
“Steel mills are offloading their long-term contract to us. They are do not want to take cargo from miners as credit is tight,” a trader for an international company in Singapore said.
“Credit is so tight that mills cannot afford to open letters of credit (LCs) for an entire capesize cargo, so they prefer to buy from the ports,” he said.
Chinese banks have been particularly reluctant to grant loans following the launch of an investigation in May of a suspected metals financing fraud at the Qingdao port.
A unit of China’s Shanxi Coal International this week filed the latest lawsuits over the fraud, adding to a complex web of claims and counterclaims to metal that traders say was pledged multiple times to raise funding.
‘VERY SLOW PROCESS’
Buyers can purchase smaller volumes of iron ore stored at China’s ports with cash.
Inventory of imported iron ore at China’s major ports stood at 109.7 million tonnes as of Aug. 22, not far below a record high of 113.7 million reached in early July, based on data from industry consultancy SteelHome. SH-TOT-IRONINV
Iron ore for January delivery on the Dalian Commodity Exchange closed down 2.5 percent at 626 yuan ($102) a tonne.
The contract fell as low as 619 yuan during the session, the weakest for a most-active contract since the bourse launched the product in October last year.
Iron ore for immediate delivery to China .IO62-CNI=SI fell 1 percent to $87.30 a tonne, its eighth straight day of decline, according to data compiled by Steel Index.
That was the lowest for iron ore since September 2012 and within striking distance of that year’s low of $86.70. A further slide would bring the price to levels not seen since 2009.
A Reuters poll of analysts in July showed iron ore weakening to as low as $80 a tonne during the third quarter.
A trader based in China’s eastern Shandong province said trading companies were also having difficulty opening letters of credit with banks.
“Even if they do get LCs, it’s a very slow process,” said the trader, who is sitting on 200,000 tonnes of iron ore stocks at ports.
Further losses in steel prices also soured sentiment towards iron ore. The most-traded rebar for January delivery on the Shanghai Futures Exchange fell 1.3 percent to end at 2,937 yuan a tonne, after hitting a record low of 2,926 yuan.
1 US dollar = 6.1412 Chinese yuan Additional reporting by Maytaal Angel in London; editing by Jane Baird