Hawaii's steel industry is bending under the strain of a collapsed U.S. financial market and lingering credit crunch, according to the state's largest scrap metal recycling company.

As of today, Schnitzer Steel Hawaii has temporarily suspended buying scrap autos and light iron, said General Manager Jim Banigan. The announcement, which comes as the company is in the throes of a lawsuit filed by competitor Paragon Metals Inc., is not related to the pending litigation, Banigan said.

“;The scrap markets are collapsing,”; he said. “;The financial crisis is hitting our industry. A lot of the credit markets have dried up and there are basically a lot of steel mills sitting around with a backlog of scrap.”;

However, Paragon Attorney Ted Pettit said that Hawaii's other steel companies are continuing to operate despite the slumping economy. Schnitzer's issues are due more likely to their struggles with toxic waste, Pettit said.

In June, Paragon filed a lawsuit accusing Schnitzer of dumping mercury into Oahu's overflowing Waimanalo Gulch Landfill and misleading the City of Honolulu into paying an annual subsidy estimated at nearly $2 million for discounts on fees to dump auto residue at the landfill, he said. Paragon is also seeking an injunction against Schnitzer to halt the dumping of automobile residue into the landfill and has asked the court to stop subsidy payments to the company, Pettit said.

Banigan deferred comment on the lawsuit to Schnitzer Attorney Gary Grimmer. The company's answer to the complaint is due on Friday, Grimmer said.

If the financial market improves, Banigan said Schnitzer will resume purchasing autos and light iron. In the interim, the company will continue buying heavy melting steel, he said.

While Banigan said there are other Hawaii companies that are still purchasing scrap auto and light iron, some Hawaii small businesses are assured of feeling the trickle-down effect.

“;I'm not in the scrap business as of today,”; said Shane Celetano, owner of Freebie Towing. “;It's going to substantially impact our business and the hundreds of other companies that bring metal to this place.”;

The slowdown at Schnitzer is going to severely impact Celetano's business, he said.

“;I've got four kids and another on the way and I don't know how I'm going to be able to pay for my shop or cover my business credit cards or loans,”; he said. “;This is a life-changing decision for me and thousands of other people who make their living dealing in scrap metal.”;

While the financial crisis is impacting businesses everywhere, other Hawaii scrap-metal dealers, including Paragon, possibly could pick up where Schnitzer left off, Pettit said.

“;I'm certain there are other metal scrap dealers in the state, like Paragon, that can start crushing and sending the entire cars out of state,”; he said.

Paragon does not conduct a shredding operation here, Pettit said. It ships all metal scrap to the mainland for processing and does not dump any waste into landfills in Hawaii, he said.

“;They do buy and sell scrap on Oahu, but their efforts are mostly concentrated on the neighbor islands because Schnitzer has had an unfair advantage on Oahu,”; he said.