Traders around the world had to deal with another crisis when, in retaliation for continued attacks by the United States and Israel, Iran attacked two aluminum products sites in the Middle East, disrupting global aluminum supply chains. The Middle East accounts for 9% of global aluminum smelting capacity. Supply has already been 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 situation, causing a rise in aluminum futures.
Before the war, the aluminum market operated with a surplus of 200,000 tons. This could turn into a shortfall of 1.3 million tonnes due to disruption at the Al-Taweelah production plant alone, which produced 1.6 million tonnes of the metal last year. Aluminum price and Alcoa shares expected to rise (AA) is reacting accordingly.
Alcoa is involved in the production of bauxite, alumina and aluminum products. The company was founded in 1988 and played a pivotal role in shaping the development of the industry over the decades. It is vertically integrated across the entire aluminum value chain and is headquartered in Pittsburgh, Pennsylvania.
AA stock has struggled since Donald Trump’s election and hit its lowest point during the April 2025 tariff war, causing the stock’s value to halve in a matter of six months. It has seen a huge recovery since then and is up 160% since those first social media posts announcing the tariffs.
A Forward P/E ratio of 10.28x looks attractive considering the Materials sector’s average P/E of 15.97x. But there’s a good reason for this discount, and it has a lot to do with future earnings potential. The consensus on Wall Street is that the company will not be able to grow its profits after 2026. This also means that if political tensions were to ease and aluminum prices were to decline again, investors entering these prices would have very bleak prospects.
With all the stock’s potential, this risk makes it difficult to pull the trigger to buy at these levels.
Alcoa announced its fourth quarter 2025 earnings on January 22. It posted EPS of $1.26 versus an estimate of $0.99, handily beating Wall Street expectations. During the quarter, the firm posted annual production records at five of its foundry facilities. The year-end cash position stood at $1.6 billion, thanks in part to healthy free cash flow generation of $594 million during the year.
