Aluminium makers oppose spot pricing of alumina

Say long-term contracts provide price stability and acts as a hedge against sharp fluctuations.

The country’s aluminium makers are against the proposal to shift to spot pricing for alumina due to sluggish Chinese demand and sharp price fluctuations. They prefer the present method of price discovery through long-term contracts.

Alumina, an intermediate product in aluminium manufacturing, is produced in refineries through conversion of bauxite. Subsequently, alumina can be used for converting to aluminium or used in various other ways.

Alumina is used as a filler for plastics, as a catalyst in various industrial applications, for gas purification and as an abrasive.

Aluminium companies in India export alumina that is not converted into aluminium. The sale happens through long-term contracts with buyers. Further, alumina prices, historically, are linked to aluminium prices on the London Metal Exchange.

However, global aluminium majors such as Alcoa and Alumina propose to delink alumina pricing from aluminium. The say the price of alumina is subdued due to its linkage with the end product. They also propose a shift to the spot market than relying on long-term contracts.

“Though price discovery is better in the spot market, long-term contracts provide a certain stability and act as a hedge against sharp price fluctuations,” said Ansuman Das, director （commercial）, National Aluminium Company （Nalco）. Nalco, which produced 1.59 million tonnes alumina in FY10, usually sells excess alumina in the international market. It is a benchmark for alumina pricing.

“It’s difficult to separate alumina pricing from aluminium as its demand depends upon the overall demand for aluminium,” Das said. He said given the sluggishness in the spot market, it would not be desirable to rely on the spot demand. At present, there are effective spot markets in China, Iran and Krygystan, where alumina is sold based on the spot demand.

“During 2003-2007, alumina prices were at a high in the spot market due to an upsurge in Chinese demand. However, that demand faded with higher domestic production,” Das said.

At present, aluminium is around $2,050 a tonne on LME and international alumina prices are in the range of $310-$330 a tonne. An analyst with a Kochi-based brokerage firm said, “It’s difficult to go independent of LME prices as the benchmark price will always be at the back of the buyers’ mind.” He, however, said the implementation would depend upon lobbying by top aluminium producers.