11/18/2008 Steelmakers Squeeze Suppliers
Wall Street Journal

By Robert Guy Matthews

Steelmakers are suspending and renegotiating contracts with their
raw-material suppliers as they grapple with the sudden drop in demand for
everything from cars and appliances to bridges and buildings.

Some customers want suppliers to cancel or postpone deliveries. Others are
simply refusing deliveries and buying their coal, iron ore and scrap steel on
the spot market, where prices have fallen below long-term-contract prices.

The unilateral moves put suppliers in a squeeze. If they don't agree to delay
shipments or lower prices, they could be left with no sales at all. At Chinese
ports, ships laden with unwanted scrap metal sit stranded while scrap sellers
scramble to find new buyers. The alternative, sending the unwanted scrap back
to the U.S, is cost-prohibitive.

ArcelorMittal sent a letter to its German scrap-metal suppliers, who
essentially are beholden to the world's biggest producer of steel, saying the
steelmaker has been forced by the global downturn to suspend contracts with the
suppliers as of the end of last month. ArcelorMittal didn't confirm the
existence of the letter, which was reviewed by The Wall Street Journal, but
said it "has taken voluntary, prudent and responsible steps to align supply
with demand. . . . We announced on 5 November we have suspended some
raw-material deliveries."

Likewise, India's state owned Rashtriya Ispat Nigam Ltd. wrote to several of
its metallurgical-coal suppliers this month, asking them to cut prices 68% for
the contract year ending next June. The steelmaker said it hadn't received a
response as of late last week.

The U.S.-based Institute of Scrap Recycling Industries, which represents
16,000 companies in the U.S. and abroad that collect and resell metals, paper
and plastics, met this month with the U.S. Commerce Department to discuss how
Washington could protect and enforce contracts. The Institute's main complaint
involved Chinese scrap buyers who are canceling orders and insisting on
renegotiating prices at ports after deliveries arrived. Institute President
Robin Wiener estimated that busted contracts with Chinese buyers are costing
his members "hundreds of millions of dollars."


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