UPDATE 1-Chile's Molymet plans to sell rhenium on spot market
* Most rhenium sold on long term contracts
* Major rhenium consumers are aero engine makers
LONDON, Aug 27 (Reuters) - Chile's Molymet is planning to sell some of its rhenium output on the spot market to make spot prices more representative, a source at the world's largest producer of the aerospace material said.
This would be a major change in the market where most of the rhenium produced is sold on long-term contracts.
Molibdenos y Metales SA of Chile (Molymet) MOL.SN is the world's largest producer of primary rhenium, accounting for more than 50 percent of supply.
"We are studying what percentage of our sales will be sold on the spot market," the source said. "We are a big player it is reasonable we should say something about the spot price."
Not traded on an exchange, indicative pricing for the silvery-white metal is left to vendors such as Thomson Reuters and Metal Bulletin, where reporters collect prices from traders, producers and consumers and publish a consensus.
Rhenium has the second highest melting point -- 3186 degrees celsius -- of any metal. It is a byproduct of molybdenum, which itself is a byproduct of copper, from mines in Chile, United States, Kazakhstan and Poland.
The need for fuel efficieny, more environmentally friendly aeroplanes has meant strong demand for rhenium, which helps engines reach higher temperatures. It is also used to make industrial turbines.
Traders say copper producers are asking for credits for rhenium in the molybdenite processed by Molymet. That is why Molymet is looking at sales on the spot market.
"Either they want the rhenium units back, minus yield loss, or they want payment via the published price less discount," a UK-based minor metals trader said. "In both instances the old fixed price sales system cannot work.
Major consumers of rhenium are aero engine makers such as U.S.-based General Electic (GE.N), United Technologies (UTX.N) Pratt & Whitney and UK-based Rolls Royce (RR.L).
Rhenium pellets are currently trading at around $4,500 a kg on the spot market, up from levels above $3,700 in January, but down from record levels above $10,000 a kg in July 2008.
(Reporting by Pratima Desai;editing by William Hardy)