Alumina Ltd (ASX:AWC): China Driving Alumina Pricing Structural Change
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.
BHP Billiton Limited