Alcoa Wins From An Aluminum Boom Which Has Further To Run

Alcoa, the big aluminum producer and winner of the Iran war, has seen its shares rise 49% in the past 12 months and could rise further if the investment bank’s latest research is correct.

UBS last week upgraded its investment recommendation on Alcoa to buy from neutral, predicting its Australian-listed shares would rise to A$110 ($78), up 11% from the last sale and 23.5% from last Friday when the bank sent notes to clients.

Up 47% and still rising

Other aluminum producers, including Australia’s South32 and Norway’s Norsk Hydro, have also been rising in metal prices, up 15% since the war broke out in late February and 47% since the same period last year.

Aluminum prices last traded at $3,650 a ton on the London Metal Exchange (LME) amid a loss of about 9% of global production, which often comes from smelters in war-affected countries.

Smoke rises after an Iranian missile attack on Bahrain. (Photo by Stringer/Anadolu via Getty Images)

Anadolu, Getty Images

Factories in the United Arab Emirates, Bahrain, Qatar and Iran have been forced to close or partially close due to equipment damage or shortages of raw materials, especially alumina, a key ingredient in metal production.

UBS said that current aluminum prices do not reflect the possibility of long-term supply disruptions in the Middle East.

UBS said that reported weak demand for the metal and the impact of rising inventories in China could cause LME prices to consolidate in the short term.

“However, we expect supply disruptions from the conflict in the Middle East to exceed 3 million tons, more than offset by weak demand/substitution,” UBS said.

Prices remain high

“The resulting deficit is likely to support higher aluminum prices and premiums over the next one to two years, regardless of whether/when (metal) flows resume through the Strait of Hormuz.”

UBS expects Alcoa to move from a net debt position to a net cash position this year, with the company’s cash balance rising to $1.8 billion next year, which could be a signal of increased shareholder returns.

Another investment bank, Citigroup, was more optimistic than UBS last week, describing the aluminum market as “the most optimistic situation in more than 50 years”, with prices reaching $4,000 per ton in the short term.

Pour the molten aluminum into the crucible. Photographer: Nathan Laine/Bloomberg

Citi said: “The aluminum market has just suffered one of the worst supply shocks in modern history, especially since the 1970s, when the first and second energy shocks resulted in significant production cuts.”

“At the same time, spare capacity is close to zero, inventories were at historically low levels before the shock, and the costs of alternatives such as copper and plastics are very high by historical standards.

“We expect aluminum inventories to fall to record lows over the next 6 to 12 months, with associated futures buying of physical inventories pushing prices up to an average of $4,000/ton in the second half of 2026. In our bull case, aluminum prices could average $5,350/ton in 2027.”

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