As the economy caves, contracts suddenly become options to buy

Dec 07, 2008 | 07:00 PM |

When is a contract not a contract? Apparently when people are desperate enough to say it's not binding, damn the potential legal consequences.

The issue is becoming an increasing problem for traders and distributors as some buyers find themselves short on cash or credit and willing to resort to extreme measures to keep from going belly up.

"It's gotten to the point where there are just no rules out there. Everyone is walking away from contracts," one trader said. "There is stuff coming in. People don't even go pick it up. They don't even tell you. It's unbelievable."

If you threaten them with a lawsuit, they still might not budge, he said. Instead, they'll demand a lower price or refuse to take the material at all. "Everything on import is being renegotiated," he said. "A contract, it's just an option to buy. There are guys out there who will cancel and then try to buy it back $200 (per ton) cheaper before the boat hits."

Traders may have very little recourse, he said. "What are you going to do? Go to court? Sit with the steel on the docks for the next two years and fight it out with the guy?" With prices in free fall, the word of the day is "survival," he said.

A second trader agreed that contract violation is becoming a big issue.

"A month ago, most people were saying, 'If it's late, I don't want it.' Today, it's 'I don't want it.' Period," he said.....