Reuters reported that Australia's Alumina Limited expects to double its exposure to spot index pricing of alumina by the end of 2012.
Alumina holds 40% of Alcoa World Alumina & Chemicals with capacity to meet nearly 20% of world demand. US based Alcoa owns 60%. Its gradual shift to index pricing was 20% complete by the end of 2011 with the next 20% due by the end 2012.
Alumina, the raw material used in the second stage of aluminum production has traditionally been priced annually at between 10% and 17% of the London Metal Exchange traded price. But producers have said the LME linked system no longer reflects alumina production costs and market fundamentals, as smelting firms turn more to independent suppliers for alumina.
It typically takes between 1.5 and 2 tonnes of alumina to make one tonne of aluminum. Alumina spot index pricing yielded the equivalent of 14.3% to 16.7% of the LME aluminum cash price in 2011 versus 13.4% average industry linkage rate in 2010.
The company said that AWAC's alumina production rose 3.5% to a record 15.7 million tonnes in 2011 helped by an improved performance from operations in Brazil. Stronger production along with higher alumina and aluminum prices boosted net profit to USD 128 million in 2011 from USD 35 million the previous year and enabled Alumina to maintain an annual dividend of 6 cents per share.
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