Alcoa Inc is changing the way it prices alumina as its long term contracts come up for renewal, according to Chairman CEO Klaus Kleinfield.
Alcoa’s long term supply contacts had priced alumina as a percentage of exchange traded aluminum, but as the contracts come up for renewal the company is pushing customers toward higher non LME linked prices.
Alcoa changed their pricing to reflect market conditions as well as underlying costs, and this had yielded a higher price percentage of LME.
Over the past decade, the LME price and cost inputs of alumina did not move in tandem. Alcoa believes it is time for the industry to develop a new price methodology going forward.
An alumina pricing index is still in development, but Alcoa reiterated this week that it will support such a pricing mechanism once it comes to fruition. They are moving toward indexed pricing as they are going into 2011.
The fear of some customers is that the information given to such an index unless it’s truly transparent is always lagged for not even accurate. Customer’s really unwilling to switch may be able to hold out paying a percentage of LME a bit longer but not at the 14% and lower rates that have been offered in the past contract years. Prices are going up one way or another. The 12% are not there anymore and they haven’t been for years.
Excerpts from American Metal Market. July 15th, 2010
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