China has been importing record amounts of iron ore even as steel output slows, at least partly because some cash-strapped companies are using the commodity as collateral for credit, analysts say.

The country’s imports of iron ore, a key ingredient in steel, hit a record in November and again last month, when they rose 18% from December to 86.83 million metric tons. That has pushed stockpiles to the highest level in more than two years. Iron-ore inventory at China’s major ports reached 100.91 million tons as of last Friday, after eight consecutive weekly increases, according to data from industry website Mysteel.

Yet China’s steel output has been slowing since September, and fell in December to its lowest level of the year, partly due to a push by Beijing to cut the industry’s bloated capacity and the pollution it produces.

Opportunistic buying–iron-ore prices fell in January to their lowest in six months–and restocking ahead of the Lunar New Year at the end of the month surely contributed to last month’s surge in imports. But so did the need for financing by companies unable to obtain bank loans, analysts say.

“We think it could be non-fundamental factors such as financing demand” that drove up imports, said Jessica Xu, an analyst at Metal Bulletin.

Such commodity financing deals are common in China–copper is frequently used in the same way. “These deals take many forms but the most common is for a company to obtain low-cost letters of credit to import a physical commodity. The companies then store the copper and use it as collateral for local borrowing, which is then repeatedly rolled over,” according to Capital Economics.

In other cases, companies will sell the copper in the local market, using the receipts to finance operations, before repaying the letter of credit in three to six months, Capital Economics said in a note.

Ed Meir, a senior analyst at Intl FCStone, said the use of iron ore in financing deals indicates that Chinese traders are expanding their reach and using other metals to obtain larger credit lines from banks.

In any case, the high stockpiles are unlikely to weigh on iron-ore prices because China’s construction season is ready to begin, said Ms. Xu, who tipped the commodity to average $128 a metric ton during the first half of this year.

The global iron-ore benchmark-set at China’s Tianjin port in the country’s north-rose 2.9% on week to US$124.50 a metric ton Wednesday , according to the Steel Index.