SYDNEY Feb 16 (Reuters) - Australia's Alumina Ltd expects to double its exposure to spot index pricing of alumina by the end of 2012, the company said on Thursday after reporting 2011 net profit more than tripled.
Alumina holds 40 percent of Alcoa World Alumina & Chemicals (AWAC), the world's largest alumina business, with capacity to meet nearly 20 percent of world demand. U.S.-based Alcoa owns 60 percent.
The company said its gradual shift to index pricing was 20 percent complete by the end of 2011, with the next 20 percent due by the end 2012.
Alumina, the raw material used in the second stage of aluminum production, has traditionally been priced annually at between 10-17 percent of the London Metal Exchange-traded price. But producers have said the LME-linked system no longer reflects alumina production costs and market fundamentals, as smelting firms turn more to independent suppliers for alumina.
It typically takes between 1.5 and 2 tonnes of alumina to make one tonne of aluminum.
Alumina spot index pricing yielded the equivalent of 14.3 - 16.7 percent of the LME aluminum cash price in 2011, versus 13.4 percent average industry linkage rate in 2010, Alumina said.
AWAC's alumina production rose 3.5 percent to a record 15.7 million tonnes in 2011, helped by an improved performance from operations in Brazil, the company said.
Stronger production along with higher alumina and aluminum prices boosted net profit to $128 million in 2011 from $35 million the previous year and enabled Alumina to maintain an annual dividend of 6 cents per share, the company said.
Alumina producers were facing similar issues that were driving coal and iron ore producers to abandon long-term fixed price contracts for spot markets.
The world's biggest mining house, BHP Billiton , two years ago led the shift in sales of coking coal and iron ore to steelmakers to a quarterly spot-averaged price.
The change occurred despite resistance from customers concerned market prices would be open to manipulation by suppliers and commodities' speculators. Most coal and iron ore producers have since adopted the BHP model.