Alcoa sets alumina contracts under new pricing plan

NEW YORK, Nov 10 （Reuters） - Alcoa Inc （AA.N: Quote）, the world's largest producer of raw material, alumina, has already set some of its long-term supply contracts under a new pricing scheme that unties its link to the aluminum metal price, using instead a basket of indexes to pin down a spot price.

For at least 20 years, Alcoa had set its long-term alumina supply contracts as a percentage of the London Metal Exchange aluminum price. Alumina is the intermediate material that gets turned into aluminum and is made from the raw material bauxite.

"The one thing that you see is the fundamentals of the alumina refining business do not get reflected in the LME price. That's the real fundamental reason why we think there should be a change in how alumina is priced," said Tim Reyes, President Alcoa Materials Management.

Executives at the biggest U.S. aluminum producer spoke to Reuters after hosting a series of presentations for investors on Wednesday.

But executives said fluctuations in the aluminum price do not necessarily capture underlying costs of alumina and that alumina should be priced against its own set of fundamentals.