Traders around the world had to deal with another crisis when, in retaliation for continued attacks by the U.S. and Israel, Iran attacked two aluminum product sites in the Middle East, disrupting the global aluminum supply chains. The Middle East accounts for 9% of the global aluminum smelting capacity. Supply was already disrupted in the Persian Gulf due to the closure of the Strait of Hormuz. A direct attack on the production sites themselves has worsened the matter, causing aluminum futures to surge.
Before the war, the aluminum market was operating at a surplus supply of 200,000 tons. This could turn into a deficit of 1.3 million tons due to the disruption at the Al-Taweelah production facility alone, which produced 1.6 million tons of the metal last year. An aluminum price surge is on the cards, and Alcoa stock (AA) is reacting accordingly.
Alcoa is involved in the production of bauxite, alumina, and aluminum products. The company was founded in 1988 and had a pivotal role in shaping the development of the industry over the decades. It is vertically integrated across the complete aluminum value chain and is headquartered in Pittsburgh, Pennsylvania.
AA stock struggled since the election of Donald Trump and saw its lowest point during the April 2025 tariff war, causing the stock’s value to halve in a matter of six months. It has posted a great recovery since and is up 160% since those early social media posts announcing the tariffs.
A forward price-to-earnings ratio of 10.28x looks attractive when one considers the average Materials sector P/E of 15.97x. But there’s a good reason for this discount, and it has a lot to do with the future earnings potential. Wall Street consensus is that the company will not be able to grow its earnings after 2026. This also means that if the political tensions were to ease and aluminum prices came back down, investors entering at these prices will have very bleak prospects.
With all the potential of the stock, this one risk makes it hard to pull the trigger on buying at these levels.
Alcoa announced its Q4 2025 earnings on Jan. 22. It posted an EPS of $1.26 vs. an estimated $0.99, comfortably beating Wall Street expectations. During the quarter, the firm posted annual production records at five of its smelting facilities. The year-end cash position stood at $1.6 billion, thanks in part to the healthy free cash flow generation of $594 million during the year.
