Nov. 5 (Bloomberg) -- Scrap steel buyers in Asia are canceling purchases after prices tumbled more than 80 percent in the past four months as demand slumps, traders said.

``There are buyers in China, India and Europe that are literally fighting for their survival,'' said Bob Garino, director of commodities at the Institute of Scrap Recycling Industries Inc., a Washington-based trade association representing more than 1,600 companies worldwide. ``Steel prices have fallen off a cliff, and they just don't have the money to honor their contracts.''

Sims Group Ltd., the world's biggest recycler of scrap metal, said in October sales may fall for the Sydney-based company and force an inventory writedown. Mills in China, Japan, India and Korea, which account for more than 50 percent of global output, are slashing production as the economic slowdown curbs demand from builders and carmakers.

Prices fell to $120 a metric ton this month, from $730 a ton in July, said Jeff Allman, managing director of ferrous trading at St. Louis-based Kataman Metals Inc, which does more than $1 billion in scrap trades a year. There may be a global ferrous, or steel-rich, scrap oversupply of more than 5 million tons, he said in an interview in Shanghai.

Contract renegotiations are taking place in China, South Korea, India and other countries, according to Garino and traders, who were attending a scrap metal conference in Shanghai this week.

Surplus Scrap

Scrap iron and steel prices in Japan slumped 25 percent to 10,518 yen ($106) a ton from a week earlier, the Japan Ferrous Raw Materials Association said today. The price has fallen 77 percent since the start of October. Prices in Korea dropped 27 percent in August from July, Citigroup Inc. said Oct. 7.

Surplus ferrous scrap is sitting in yards, ports and on ships, said Kataman Metals' Allman. Profit margins have dropped to at most $20 a ton, from as much as $200 a ton previously, he said.

In Thailand, 600,000 tons of the material are idled in yards because steelmakers have cut production and aren't using the raw material, said Suppakit Varnapurna, steel scrap manager at SCT, the trading affiliate of Siam Cement PCL, the country's biggest cement maker.

Pramod Kumar Saraf, director of Chennai, India-based scrap buyer Jai Bhawani Steel Enterprises Ltd., agreed to share losses with a seller on a 2,000-ton shipment by halving the agreed price to $250 a ton, he said in an interview in Shanghai.

`Desperate Sellers'

``Sellers are desperate,'' Saraf said. ``We have compromised too.''

China, the world's largest steelmaker, will probably post a 20 percent output decline in the fourth quarter, the Central Iron & Steel Institute said earlier this week. Japanese mills are cutting production by the most in at least five years, the nation's trade ministry said Oct. 29.

Worldwide annual production of ferrous scrap is about 330 million tons a year, according to the Institute of Scrap Recycling's Garino. Scrap from discarded cars, machinery and beams in developed economies is recycled into steel in so-called electric arc furnaces. Conventional blast furnaces use iron ore and coal to make steel.

Still, China and the Middle East will continue to consume large amounts of steel for urbanization and infrastructure, helping demand for ferrous scrap to recover as early as the first quarter of 2009, Kataman Metals' Allman said.

Falling copper prices have also led buyers to cancel purchases, said John Chen, executive vice president of Tung Tai Group, a San Jose, California-based scrap-metal trader that also owns processing yards in China.

``Everyone is in shock,'' Chen said. ``It's like getting a huge margin call, and most buyers weren't hedging their purchases.''

To contact the reporter on this story: Lee Spears in Beijing at lspears2@bloomberg.net.

Last Updated: November 5, 2008 04:57 EST