* Rio says alumina moving toward short-term pricing
* Warns aluminium inventories weigh on market outlook
* Cost pressures exist in all commodities (Adds details)
MELBOURNE, Nov 29 (Reuters) - Rio Tinto (RIO.AX) (RIO.L), the world’s biggest aluminium producer, is increasingly pricing more of its alumina on a short-term basis, the firm said on Monday, a move that could prove unpopular with buyers of the raw material.
Alumina, used to make aluminium, is traditionally sold at a big discount to the aluminium price, which has allowed buyers to pre-determine prices and avoid much of the speculative trading present in other commodities.
But Rio, BHP Billiton (BHP.AX) BLT.L and other alumina producers say the old system no longer reflects alumina production costs and market fundamentals as smelting companies turn more to independent suppliers for alumina.
Rio Chief Executive Tom Albanese told an analysts’ briefing the shift signalled an “evolution” in how alumina was being sold.
Albanese also warned that large inventories of aluminium amassed during the global financial crisis two years ago continued to weigh on markets for the metal, which is used in everything from jet planes to beer cans.
“Beyond the next five years, I’m probably reasonably optimistic...But we have to be cautious in the next couple of years,” Albanese said.
Inventories of aluminium more than doubled to 2.447 million tonnes in the 12 months to October, according to the International Aluminium Institute.
Alumina, used to make aluminium, is traditionally priced at between 10-17 percent of the LME-traded price, which currently stands around $2,265 a tonne CMAL3.
Volume agreements can be set for years at a time.
The alumina sector is facing similar issues that drove coal and iron ore producers to abandon long-term fixed price contracts and shift to spot markets instead.
BHP Billiton led the shift in iron ore sales to a quarterly spot-averaged price this year, which was achieved despite resistance from customers concerned that market prices would be open to manipulation by suppliers and speculators.
Albanese also told the briefing that Rio, which is expanding aggressively in copper and iron ore, faced cost pressures across all its commodities. (Reporting by Sonali Paul and James Regan; Editing by Mark Bendeich)