Alumina Ltd (ASX:AWC): China Driving Alumina Pricing Structural Change

Alumina Ltd. (ASX:AWC) Chief Executive John Bevan said Thursday on the UBS Australian Resources Conference that the current system of pricing alumina does not represent industry fundamentals and developments in the Chinese industry will drive structural change in the alumina market.

Bevan expects and the importance of the spot market will increase and contract pricing will move towards spot over a period of several years.

The alumina price is currently linked to the price of aluminium, but miners like BHP Billiton (ASX:BHP) believe there must be a shift to a new system that reflects market clearing prices or shorter term contracts. The spot averages were approximately US$45 above composite price during the first quarter in 2010 calendar year, and 17 per cent higher than the composite over the past 12 months.

The iron ore market has seen a structural change towards short term pricing based on spot prices, driven by strong demand from China. Similarly, the global alumina market saw a significant increase in recent years. China accounts for a growing share of the global market and trades predominantly on short term or spot. Moreover, one-third of China's bauxite needs were imported. Bevan says China is very influential in third party markets for bauxite and alumina, but the industry is relatively less integrated.

Bevan said a new pricing mechanism should evolve with more spot sales outside China, possibly leading to a fundamentals-based alumina price index.

Alumina Ltd is expecting the pricing transition will be beneficial for the company, as the new system would probably raise contract prices.


Related Companies

BHP Billiton Limited
         

Alumina Limited