RUSAL prices alumina using spot index from now on

Russian aluminum producer RUSAL has priced all of its alumina deals using an index based on the spot market since June, and will continue to do so from now on, said its international alumina chief. In a recent interview with Reuters, Aleksey Gordymov Commercial Director of United Company RUSAL's International Alumina Division, said the world's top aluminum maker set its first alumina deal based on a new weighted index in June.

RUSAL, with about 7% alumina market share by volume, along with other aluminium giants Alcoa in the US and BHP Billiton in Australia, have moved away from a two-decade practice of pegging the alumina price to a percentage of London Metal Exchange aluminium metal.

Instead, beginning in the second half of 2010, most major producers began referencing an index related to the spot market for their alumina sales, including long-term contracts. Alumina is the main ingredient in making aluminium, derived from raw material bauxite.

Some alumina producers continue to evaluate the merits of the pricing switch, but RUSAL's Gordymov echoed comments made last month by Alcoa executives listing a more accurate relationship between alumina's production costs and its price as chief among the new scheme's benefits.

"The cost of alumina doesn't move with the aluminium price. This is definitely one of the main reasons why alumina producers want to move to an index," said alumina chief.

While some customers have resisted the change, arguing that it makes managing price risk more difficult, Gordymov points out that the spot market index can result in a lower alumina price than setting the price as a percentage of LME aluminium. For example, he points to recent long-term contracts concluded by India's National Aluminium Co Ltd （NALCO） at prices around 16% of monthly average LME aluminium. Last Thursday, RUSAL said in a statement that it sees next year's aluminium price around $2,400 to $2,500 per tonne If benchmark LME aluminium, rises to $2,500 in 2011, alumina would be had for $400 a tonne in Nalco's deal.

RUSAL currently prices all of its alumina deals using the index on its website www.RUSAL.com currently showing $364.65 per tonne, FOB （free-on-board）. Though no one knows where the alumina spot price will be next year, Gordymov points out that the current index price sits well below $373.60 per tonne, or 16 percent of $2,335, the latest LME aluminium price.

RUSAL calculates the its website price using an index comprised 25% of Metal Bulletin's weighted index for the previous week, 25% of CRU's index for the previous month and 50% of Platt's alumina index from the previous week.

RUSAL has about 70% of its alumina volume tied up in long-term contracts, the last of which expire in 2013, and sells 30% in spot transactions. But Gordymov said all of its current deals are now based on the index. As contracts expire, terms will be reset using the spot index.

"We don't sell anything on a percentage （of aluminium） basis now, nil, only on the alumina index," he said.