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PrintNEW YORK, Dec 7 (Reuters) - The price of scrap metal -- a key ingredient for some steel-making -- has plummeted so low that buyers are trying to renegotiate contracts even as the metal is already being shipped on the high seas, U.S. scrap industry insiders say.
The price collapse -- as much as 90 percent in the last few months -- is also leaving tons of metal piled on Chinese docks and in U.S. scrapyards and could result in companies going out of business, they say.
"They are not acting honorably," Marc Kaplan, president of Mews Metals Trading, said of buyers in China and India, who bought at a higher price and are now trying to lower the agreed upon contract price, or simply not accepting deliveries.
Bob Garino, Director of Commodities for the Institute of Scrap Recycling Industries (ISRI), said one large U.S. exporter got a call from China while a container was still at sea.
"They said that when it arrived, there would be a quality problem and it would be seized by customs -- unless the price was dropped."
Washington-based ISRI's president, Robin Weiner, said the institute had been in touch with the U.S. Department of Commerce and Chinese authorities about the issue, but there was little enforcement in China and U.S. authorities were loath to get involved in commercial contract disputes.
There was no immediate response on Friday from the Chinese Consulate in New York to a call from Reuters seeking a comment.
"We are seeing a combination of buyers refusing to accept deliveries, or buyers claiming there are quality problems and saying they will ignore it if the seller drops the price by 50 percent," Weiner said.
"We are even hearing that big steel companies, some in the U.S., are canceling orders, but we have no proof. Steel mills are not anxious to buy, and we are seeing layoffs across the board."
Weiner, whose institute represents 1,650 scrap recycling companies, said the $71-billion U.S. scrap industry has been hard hit by the economic crisis. A typical ton of scrap metal that sold for $530 this summer is now worth less than $50.
Kaplan, whose company is based in Hillsborough, New Jersey, told Reuters his yard had a backlog of material that was priced high and had not been paid for since the price dropped.
"There are thousands of containers sitting in Shanghai and Hong Kong and other Chinese ports that have not been claimed," he said.
Mews Metals, the commercial arm of privately held Klein Recycling, has a strict company policy of not shipping any products that had not been paid for in full beforehand.
"But we had three sizable contracts, worth maybe half a million dollars, where the material was purchased but never shipped; the people who purchased it were nowhere to be found after we sent them the initial invoice.
"Two were in China and one in India; the three contracts were never consummated and have been canceled by us, and I am stuck with a paper loss," Kaplan said.
He said the market for non-ferrous scrap, such as copper, has fallen dramatically but is still getting orders.
"But aluminum is horrible; there is no demand for aluminum in any shape or form," he said. "As I look out in the yard, there is 300-400 tons of aluminum sitting there."
He estimated business is off 75 percent to 80 percent. "Before the (economic) crash we were shipping 1,000 tons per week of non-ferrous and 2,500 of steel scrap.
"I had 100 employees seven weeks ago; now I have 50 and will cut more next week."
In the last three years, probably 70 percent of his business went for export, but "now it's negligible," Kaplan said. "Volume is so low, I used to ship 150,000 pounds of copper in a week; now it takes seven weeks. We filled 40 to 45 containers a week; now it's maybe half a dozen."
He said he had heard of some companies closing down because they had bought new shredders and other equipment on credit. "(But) we'll survive, if I have to drive the truck myself."
However, Kaplan sees the crisis lasting another year. "We're far from the bottom; I don't see a recovery until 2010."
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