Alumina Ltd said Thursday that the current alumina pricing system is out of sync with industry fundamentals and contract pricing would eventually transition to spot pricing, which poised to deliver further benefits both to the company and the industry.

The company presently maintains a 40 percent business stakes in Alcoa World Alumina and Chemicals' (AWAC) worldwide facilities of seven bauxite mines, eight alumina refineries and two alumina smelters, a network that refines bauxite into alumina, which is then smelted to produce aluminium.

Alumina chief executive John Bevan said that the pricing transition would translate to more advantages for the company considering that quality bauxite has been dwindling and Australia's biggest trading partner, China, is now on the lookout for more bauxite projects to fuel its expanding economy.

Under the present scheme, alumina refiners without bauxite refineries are forced to import the mineral by ship, which is quite expensive and must also face the expensive prospect of building a new refinery.

Couple that with the existing pricing model of aluminium on the London Metal Exchange (LME), which failed to reflect actual alumina productions costs, then the industry would not be given substantial incentives for establishing facilities for new capacity.

Mr Bevan said that the pricing system in effect does not reflect industry fundamentals and that seeming non-integration would only mean that "the alumina pricing should increasingly reflect industry supply/demand conditions and marginal producers' costs."

The company said that more than 30 percent of China's bauxite needs were sourced from abroad and subsequent Chinese alumina contracts were usually offered via spot pricing, and with recent structural changes in the alumina industry as spurred by developments in the Chinese industry, the significance of the spot market pricing has been further affirmed.

Alumina said that contract pricing would eventually give way to spot pricing within the next several years, considering that during the past 12 months, the average spot price has been 17 percent higher than the composite price, which is the weighted average price for a number of major importing and exporting countries.

The company is projecting that a new pricing mechanism would materialise and dominated by spot sales outside of China that could eventually create a fundamentals-based alumina price index.

As of 1316 AEST on Thursday, Alumina shares were trading at $1.65 or two cents higher.