Alcoa Inc, the world’s largest producer of alumina, has set some of its long term supply contracts using a new pricing scheme which ties the price of alumina to the aluminium metal price.
The old system of pricing used a basket of indexes to narrow down to a spot price.
Ultimately this shift to a new pricing system will make Alcoa more profits. This is not the only change at Alcoa this year. It has also ramped up its facilities in Brazil, China, Russia and Saudi Arabia. Its new bauxite mine in the Amazon jungle will also reach full production by the end of 2010.
CEO Klaus Kleinfeld said that some investors on Wall Street have been hesitant or unaware of the company’s expansion and so the stock prices for Alcoa have remained roughly the same as they were last year.
Tim Reyes, President Alcoa Materials Management said that the fundamentals of the alumina refining business do not get reflected in the LME price. That's the real fundamental reason why he thought there should be a change in how alumina is priced.
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