Alcoa's share value drastically falls over the years; what does 2025 hold for the global brand?

Alcoa's (NYSE: AA) share value has dropped nearly 60 per cent since March 2022, which was its all-time peak. During the same period, the S&P 500 index has increased by 33 per cent, yet this has not been enough to offset Alcoa's incredibly sharp decline compared to its peers. For instance, Century Aluminum Co. has seen a 33 per cent decline, while Kaiser Aluminum Corp. has dropped 28 per cent. Alcoa is well-positioned in the aluminium products and alumina production sector. The gradual sell-off of its stock has been influenced by various macroeconomic factors, which have hindered the strong rally in aluminium prices that occurred during the COVID-19 pandemic.

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Generic market scenario

Aluminium prices have greatly decreased from a peak of around $4,000 per tonne in March 2022 to a recent price of just over $2,575. Early in 2022, strict COVID-19 lockdowns in China severely impacted its manufacturing and construction sectors. As one of the world's largest consumers of aluminium, the slowdown in China's demand directly affected global prices. Demand has improved over the years, with the lingering effects of COVID-19 restrictions and changes in industrial priorities still hindering a full recovery.

Additionally, aluminium production is highly energy-intensive, and energy prices—particularly for natural gas and electricity—have experienced significant volatility due to geopolitical factors, such as the Russia-Ukraine war.

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The immense fall's due diligence

A portion of the share value's decrease over the past two years is owed to the deterioration in the company's EBITDA, plunging from $2.2 billion in 2022 to $0.5 billion in 2023. Revenues witnessed roughly a 15 per cent drop from 2022 to 2023. The weakness in performance is primarily due to Year-on-Year lower average realised prices for aluminium and alumina, as well as higher production costs, primarily in the alumina segment.

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With rate cuts in flux and global conflicts stirring uncertainty, will AA bounce back or face another year of underperformance against the S&P, echoing its struggles from 2022 to 2024?

There is hope for Alcoa's stock, driven primarily by rising alumina prices, increased aluminium production, and significant acquisitions. Aluminium production has risen for the eighth consecutive quarter, beginning in the fourth quarter of 2022. In the aluminium segment, production increased by 3 per cent sequentially, reaching 559,000 tonnes. The high alumina prices, combined with low raw material costs, have substantially boosted EBITDA, and we anticipate this trend will continue in the upcoming quarters.

Net income rose from $30 million in the previous quarter to $135 million in Q3 of 2024, while earnings per share (EPS) increased from $0.16 in Q2 2024 to $0.57 in Q3 2024. Furthermore, on August 1, Alcoa completed its acquisition of Alumina Ltd., enhancing its economic exposure to the alumina market. Before the acquisition, Alcoa had third-party sales of just 2 million tonnes; this figure has now increased to approximately 6 million tonnes. The consolidation of the tax structures of the two companies is expected to generate cash tax savings of around $100 million over the next 12 to 18 months.

The global brand's measures to boost its sustainability silhouette, like downsizing carbon emissions and subsidising green technologies, could furthermore lead to improved long-term profitability, positioning the company well as demand for sustainable products rises. AA stock is valued at around $46 per share, which is around 25 per cent ahead of the current market price.

Information credit: https://www.forbes.com/