OSLO, March 10 (Reuters) - Norwegian aluminium group Norsk Hydro (NHY.OL: Quote), rich in alumina and bauxite after purchasing assets from Brazil's Vale (VALE5.SA: Quote), said prices of these materials should to a larger degree reflect production costs.
Prices of alumina and bauxite now roughly follow the aluminium price on the London Metal Exchange (LME).
"Hydro would prefer a model which mixes LME, index pricing and to a larger degree the costs in the bauxite and alumina value chain," Johnny Undeli, Hydro executive vice president and bauxite and alumina chief, said in a statement.
"The future pricing of bauxite and alumina should reflect the fundamentals of the value chain," Undeli added.
Undeli said Hydro was now fourth in the world in terms of alumina volumes brought to the market and that its position would grow stronger after planned expansion in Brazil.
"Short term, our main ambition is to increase capacity utilization in the mining operations in Paragominas and in the Alunorte alumina refinery," said Undeli.
In Alunorte, the world's largest alumina refinery, Hydro seeks to increase output to 6.3 million metric tonnes from 5.8 million in 2010. In Paragominas, one of the world's largest bauxite mines, it seeks to increase production to 10 million tonnes from 7.5 million in 2010.
Hydro said it would in the longer term continue expanding mining operations in Paragominas to 15 million tonnes and also establish an alumina refinery in Barcarena.