Alcoa (AA) finds itself in an interesting position in early 2025. Known as the aluminum company of America, Alcoa mines bauxite, refines it to produce aluminum, and then fabricates aluminum products.
For the mining and metals industry, Alcoa is a stock to watch closely in the coming years. It’s the fifth-largest aluminum company by market cap and has a valuation considered attractive compared to Reliance Steel & Aluminum.
What Does Alcoa Stock Have Going for It?
Analysts who watch the metals industry predict higher aluminum prices. The industrial metal looking bullish compared to other base metals. The average price per metric ton of aluminum rose 4.9% year-on-year in 2024. Analysts believe prices will increase by 6.3% to $2,573.50 per metric ton.
The aluminum market expects to have a shortfall of 8,000 tons in 2025 and 365,000 tons in 2026. Prices are projected to top $2,626 per metric ton in 2026. China and the United States will spur more demand for aluminum. The Asian country accounts for 60% of all global aluminum demand. Alcoa may very well be ready to pounce on with its presence in Australia.
Alcoa’s smelter activity has increased. Five smelters set production records in 2024. Its Brazilian smelter operated at 90% capacity after it restarted. It expects to restart its Spanish smelter by October 2025. So, ramping up production is coming at the right time for the metal producer. Management expects to see higher aluminum shipments in 2025 versus 2024.
10 Year Contracts Lead to Steady Revenues
The supply and demand issue has led to record high alumina prices. That might be a problem for smelters that rely on this ceramic substance. But Alcoa deals in alumina and the pure metal aluminum. Higher prices on both products can be a boon to the company. It has well-placed infrastructure around the globe.
The cost of alumina accounts for half of the cost of making aluminum. Normally, that is around 30 to 35%. The rising price of alumina might lead analysts to think the aluminum supply chain could take a hit.
But Alcoa has been around since 1888. It signed a 10-year contract extension with Aluminium Bahrain B.S.C (Alba). The contract will supply Alba with 16.5 million tons of alumina from Alcoa’s Western Australia operations. The move makes Alcoa the largest third-party supplier of alumina to Alba. So, Alcoa’s long-term contracts make it a good bet for long-term growth.
Less Debt Equals Better Leverage Ratios
Alcoa said it will prioritize lowering its debt reduction and reposition capital in the coming years. The goal is to reach $1 billion in adjusted net debt. Alcoa held $2.55 billion at the end of 2024, up from $1.87 billion a year prior. Lowering that debt will take time but will also produce better leverage ratios.
The good news is that lower debts on its books will make Alcoa more agile and less susceptible to working capital bottlenecks in the future as well as unforeseen market forces.
What Could Lower Alcoa’s Stock Price in 2025?
Alcoa is a long-standing global company with a good outlook and enormous clout in the industry but the multinational company does have some challenges to face in 2025.
Tariffs have sent stock markets lower in Q1 2025, leading to volatility. Some investors may perceive that Alcoa will leverage its position as an American-based company, headquartered in Pittsburgh, to avoid tariffs. It could take advantage of the current geopolitical climate to become a bigger supplier to American companies that need aluminum for parts, equipment, and assemblies.
Alcoa has overseas operations in Canada, Brazil, Australia, and Western Europe. It does import aluminum from Canada to the United States. CEO William Oplinger said on Feb. 25, 2025, that aluminum tariffs would hurt U.S interests, and that his company will assess whether it should increase domestic production.
He cast doubt on ramping up production stateside. That’s because Oplinger said tariffs are generally short-term concerns. The aluminum industry has to think 20 to 40 years ahead when thinking about production, mining, and operations. Alcoa is actively pursuing a Canadian tariff exemption for its imported aluminum products.
Alcoa also faces environmental and regulatory scrutiny at home and abroad. In North Carolina, a study from Duke University showed that water supplies in some historically black communities face groundwater pollution. The study claims the company has been slow to clean up the messes it left behind for some watersheds, a process that started in 1989.
The Western Australia Environmental Protection Authority has been reviewing Alcoa’s plan to expand mining operations near Perth. There are fears mining could contaminate Perth’s drinking water supplies. While some mining operations have expanded, the Australian authorities are scrutinizing operations there more closely. A report states that the aluminum company has not rehabbed a single plot of land in that country, even though it agreed to do so when it sought mining rights.
Should I Buy Alcoa Stock?
The consensus is that Alcoa stock is a buy based on 17 analyst ratings. The company stands to gain a lot of ground and market in the next two years. It’s a relatively good value at the moment, so investors should take a closer look.
Alcoa stock has dropped since late November 2024 when it was trading as high as $47.42 per share. Part of the reason for the decline came from its Q4 2024 earnings report. A refinery in Western Australia expects to curtail production in 2025. The company also expects $60 million sequential negative impact in Q1 2025 because of seasonal factors and operational changes.
The stock slid over the past few months despite having strong financial improvements compared to Q4 2023. Alcoa reported a net income of $202 million in Q4 2024, much better than the net loss of $150 million in income from the year before. Sales were nearly $900 million better when comparing the same periods. Earnings per share dished out $0.77, a sharp increase from a loss of $0.84 in Q4 2023.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.
