ArcelorMittal USA, has been taken to court by a coal company for allegedly breaching terms of a September 2008 coal supply agreement that called for the big steelmaker to buy in excess of 200,000 mt of metallurgical coal in calendar year 2009 at a price of more than $200/mt.

In the complaint filed earlier this week in US District Court for the Western District of Pennsylvania, Kingston Resources, a relatively small met coal producer, said the coal deliveries were to begin in early January under the agreement. Before they started, however, ArcelorMittal notified Kingston that it wanted to renegotiate the price, according to the law suit.

The suit cited a December 19, 2008, email to Phil College, an employee of Kingston affiliate and authorized agent Foundation Energy Sales, from Danielle Lewis, identified as ArcelorMittal's sourcing manager. In the email, Lewis informed College, "As you are aware the market has taken a significant down turn and ArcelorMittal has reduced production significantly in order to adjust. In light of all these issues and the drastic decline in metallurgical coal pricing we would like to discuss lowering the current contract price to reflect something closer to the 2009 market price."

Lewis added that ArcelorMittal wanted to meet with Foundation representatives during the first week of January, most likely in Chicago, to initiate contract renegotiations.

Kingston said in the suit the email "raised concerns about ArcelorMittal's intention to honor [the coal supply agreement] by purchasing the 2009 fixed quantity of Kingston coal at the 2009 fixed price."

Accordingly, Kingston "promptly responded by a letter dated December 22, 2008, and rejected ArcelorMittal's request to renegotiate the binding CSA." In that same correspondence, Kingston "requested that ArcelorMittal confirm that barges are being scheduled to buyers to take delivery -- of one-twelfth of the 2009 fixed quantity -- of Kingston coal in January starting in the first week of next month."

ArcelorMittal never replied to that letter, Kingston said. Instead, ArcelorMittal again suggested that Kingston/Foundation representatives travel to meet with ArcelorMittal, preferably during the period January 11-15, 2009, in Brussels, Belgium, "presumably because the proposed attendees for ArcelorMittal -- its global corporate purchasing representatives – are located in Europe."

As the new year dawned, it "soon became clear that ArcelorMittal remained focused on trying to persuade Kingston to renegotiate the CSA's 2009 fixed price rather than performing that contract in accordance with the terms," the suit said.

By the middle of January, ArcelorMittal had taken delivery of just three barges of Kingston coal, "significantly less than the half-month pro rata tonnage," the suit said. ArcelorMittal "was also not communicating with Kingston's scheduling contact about dates for barges to be placed" at a  barge-loading terminal on the Kanawha River in West Virginia "to facilitate delivery of the remaining tonnage needed for ArcelorMittal to meet its January quantity commitments."

Making matters worse, continued the suit, "after two barges were placed in the terminal in mid-January by ArcelorMittal's barge transportation provider and Kingston had fully loaded the barges and thus delivered additional tonnage of coal, one of ArcelorMittal's designed representatives under the CSA, Bill Sullivan, told Kingston's scheduling contact, Frank Isaacs, that ArcelorMittal was refusing to allow the barges to be released."

Kingston said ArcelorMittal has "continued failing and refusing to accept delivery of the Kingston tonnage it is obligated to accept under the CSA, in breach of its obligations there under."

Kingston is seeking a court judgment against ArcelorMittal for "compensatory and any other appropriate damages in excess of $75,000,"  although the actual amount was not specified.

ArcelorMittal officials could not be reached for comment on the suit. –Platts