Aluminum producers push for shift in alumina pricing

DJ reported that alumina producers are continuing to push for a move in the way contracts are priced favoring a switch to an index based system.

The world's largest producers US based Alcoa Inc and Russia's UC RUSAL are strong proponents of a move to what they described as a system that reflects the cost of production.

Mr John Thuestad group president of Alcoa Global Primary Products said that pricing alumina relative to the London Metal Exchange is a link that we find less functional" than pricing based on costs. These costs include caustic, energy and transportation.

Alumina is the key ingredient used to make aluminum, the metal used in the automotive and construction industries. Currently alumina contracts are priced as a percentage of the LME aluminum price usually between 11% and 14%.

Mr Vladislav Soloviev first deputy chief executive of RUSAL said that "We support a move to a new mechanism because alumina isn't based on the cost of production right now."

A move to an index based system was recently seen in the iron ore sector after strong backing from key suppliers to China's stainless sector, BHP Billiton PLC and Rio Tinto PLC.

Mr Rhodri Harries senior VP of commercial, energy and carbon products of Rio Tinto Alcan said that "We're an integrated producer with a balanced to long alumina book. If we move to an index, it will take some time to play out as pricing shifts. There will probably be a range of different mechanisms, which will reflect the cost of production."

Mr Harries said that not all aluminum producers are happy at the idea of delinking alumina contracts from the price of aluminum metal, especially if they are net buyers of the key raw material.

Mr Laurent Schmitt CEO of Aluminium Bahrain said that as a net buyer we want to keep the current alumina pricing mechanism as this ensures fair distribution of value-added and gives value creation along the chain. This is the best solution to support the growth of this industry.