You're lying. That isn't accurate. That section of the band contacts the skin directly and magnets never touch that side. The magnets only touch on the colored side of the strip on that band piece that shows the mm size on it.
The wear on it looks like extreme water exposure for a prolonged period of time in my opinion. I've had many of these bands over time and always wear them to the gym and my wrist sweats excessively. I also pat dry it after a workout and it has never done this over the years. The bands aren't water resistant but they don't damage this easily with sweat exposure.
Anyway, these bands can be replaced under warranty exception. In fact I have the chalk leather link and the band has quickly discolored in the 7 weeks I've had it. Probably an improper coating application. I contacted apple support last night and after sending them pics they're replacing it. My guess is they didn't offer to replace yours due to either time of having it, failure to provide proof of purchase, or they don't believe that you didn't do anything to damage the band.
You can spin your story anyway you want but your statements don't line up and you just sound like someone who wants to complain about apple.