Buyers in a fix as Hindalco, Balco adopt new price mechanism

In line with copper prices, the final prices of aluminium products will be now determined at the end of the month. Therefore, buyers are unaware of the procurement price of raw aluminium by Hindalco and Balco.

"This has brought uncertainties over the final prices of products, as it will be known only by the end of the month. This leads to complexity in the end users' billing," said an aluminium trader.

"By the end of the month, we either need to hold stocks of aluminium or final products. In both cases, our overheads would multiply," the trader said.

According to market sources, both private aluminium majors have linked aluminium prices with the current prevailing prices on the London Metal Exchange (LME), the world's largest base metals trading platform.

Earlier, domestic players would arrive at a landed price, determined on the basis of the average LME prices and currency behaviour of the past five days. Additionally, a premium ranging between $20-$100, depending on the demand and supply situation in the domestic market, coupled with freight rates was also considered. The practice was easier for end users as they were aware of the procurement price of the raw material, aluminium.

Now, these producers have linked domestic prices with the LME by computing average prices of the past month coupled with the change in currency behaviour, freight rates and premium.

The public sector National Aluminium Company (Nalco) has not yet jumped on the bandwagon as their customers are happy with the existing pricing method.

"Why should we push customers into uncertainty when they are happy with the existing pricing mechanism of fixed price? Ultimately, the fixed price formula will help them determine their product price as well," said a senior official at Nalco.

Nalco revises prices every month and supplies aluminium to customers purely on financial arrangement, the amount of which is paid by customers in advance, and the letter of credit (LC) from a reputed bank.

A Hindalco executive neither confirmed nor denied the change.

Domestic players always keep prices marginally lower than the landed, imported price so that local players should source material from them.

A Balco executive, however, said the new mechanism would make their prices more transparent to global development.