Executive Summary / Key Takeaways

• Alcoa Corporation, a vertically integrated leader in bauxite, alumina, and aluminum, is strategically transforming its operations to capitalize on global demand growth driven by green and digital transitions.
• The company delivered strong financial performance in Q3 2025, with net income attributable to Alcoa reaching $232 million, significantly benefiting from the sale of its Ma'aden joint venture interest and higher aluminum prices.
• Strategic initiatives, including a new long-term energy contract and $60 million investment at the Massena smelter, the development of a gallium plant in Australia, and the restart of the San Ciprián smelter, underscore a commitment to operational efficiency and critical mineral supply.
• Alcoa maintains a disciplined capital allocation strategy, prioritizing debt reduction to achieve an adjusted net debt target of $1.0 billion to $1.5 billion, while also evaluating future shareholder returns and growth opportunities.
• Despite facing market volatility, U.S. Section 232 tariffs, and permitting delays in Australia, Alcoa's integrated supply chain, low-carbon product portfolio, and advocacy efforts provide a robust competitive foundation.

Setting the Scene for a Global Aluminum Powerhouse

Alcoa Corporation stands as a foundational player in the global aluminum industry, encompassing bauxite mining, alumina refining, and aluminum production. Its overarching strategy centers on operational excellence, portfolio optimization, and disciplined capital allocation, all aimed at navigating a dynamic market and delivering long-term value. The company's historical journey, marked by strategic acquisitions like Alumina Limited and divestitures such as the Ma'aden joint ventures, has shaped its current integrated position and ability to respond to evolving industry demands.

The aluminum market is currently propelled by powerful megatrends. The green and digital transition, requiring aluminum for electrification, decarbonization, and digital infrastructure (including electric vehicles and data centers, which are driving significant electricity demand), is a primary growth driver. Additionally, the rise of developing economies, a shift in China's growth trajectory, and reshoring initiatives in North America and Europe are reshaping demand patterns. Material substitution, where aluminum's recyclability and performance offer advantages over alternatives, further underpins its long-term growth trajectory.

Technological Edge and Innovation: Fueling Future Growth

Alcoa's foundational strengths are significantly bolstered by its technological differentiators and ongoing innovation. The company's low-carbon EcoLum primary aluminum now constitutes half of its metal sales in Europe, demonstrating a tangible benefit in meeting customer demand for sustainable solutions. Alcoa also offers EcoSource, a non-metallurgical alumina product, expanding its market reach.

A significant development is the planned gallium plant at Alcoa's Wagerup alumina refinery in Western Australia, supported by the U.S., Australian, and Japanese governments. This project is strategically vital, aiming to establish a critical mineral supply chain outside of China, with an anticipated capacity representing around 10% of the world's gallium market. Alcoa is pushing for "first metal by 2026," positioning itself as a first-to-market leader outside China. The company's R&D efforts extend to ELYSIS, where it anticipates starting a 450 Ka cell in 2025, and to refinery technologies like electric calcination, which promises a step change in energy usage and carbon emissions. These technological advancements are crucial for Alcoa's competitive moat, contributing to lower costs, improved margins, and a stronger market position in a decarbonizing world.

Operational Excellence and Strategic Portfolio Shaping

Alcoa's commitment to operational excellence is evident in its recent portfolio adjustments and facility enhancements. The company successfully exceeded its $645 million profitability improvement program ahead of schedule in 2024, achieving $675 million in savings through initiatives focused on raw materials, productivity, and portfolio improvements.

Recent strategic moves include the permanent closure of the Kwinana alumina refinery in September 2025, a decision driven by the refinery's age, operating costs, and bauxite grade challenges. While this incurred an $856 million restructuring charge in Q3 2025, cash outlays are expected to approximate $600 million over the next six years, with potential for significant offset from the future sale of the industrially zoned land, which boasts port and rail access. In Spain, Alcoa formed a joint venture for its San Ciprián operations in March 2025, resuming smelter production after a temporary pause due to a widespread power outage. The smelter is expected to complete its restart by mid-2026, with Alcoa funding up to $117 million for operations. A major win for U.S. operations was the October 2025 announcement of a new 10-year energy contract with the New York Power Authority for the Massena smelter, coupled with a $60 million capital investment in its anode baking furnace. This secures competitively priced renewable energy for Massena, enhancing operational efficiency and strengthening U.S. primary aluminum production capabilities.

Financial Performance: A Story of Resilience and Strategic Gains

Alcoa's financial performance in the third quarter of 2025 reflects a period of strategic gains and operational adjustments. Net income attributable to Alcoa Corporation surged to $232 million, a notable increase from $164 million in the prior quarter. This improvement was primarily driven by a $786 million gain on the sale of its interest in the Saudi Arabia joint venture and a subsequent $267 million favorable mark-to-market change on the Ma'aden shares. For the nine months ended September 30, 2025, net income attributable to Alcoa reached $944 million, a significant increase from $142 million in the same period of 2024, underscoring the impact of strategic actions and improved market conditions.

Consolidated sales in Q3 2025 were $2,995 million, a sequential decrease of 23% primarily due to lower volumes and prices from bauxite offtake agreements and reduced aluminum shipments. However, year-to-date Q3 2025 sales increased to $9,382 million from $8,409 million in the prior year. The Alumina segment's Adjusted EBITDA decreased sequentially to $67 million in Q3 2025, impacted by asset retirement obligation adjustments and lower alumina prices. Conversely, the Aluminum segment's Adjusted EBITDA saw a substantial sequential increase to $307 million, benefiting from higher average realized aluminum prices and favorable raw material costs.

Alcoa's liquidity remains robust, with cash provided from operations at $648 million for the nine months ended September 30, 2025, compared to $207 million in the prior year.

The company's adjusted net debt stood at $1.635 billion at the end of Q3 2025, progressing towards its target range of $1.0 billion to $1.5 billion. This deleveraging effort includes a $1 billion debt offering in March 2025 to repay existing debt and tender offers for $890 million of outstanding notes. The company's credit profile was affirmed with a positive outlook by S&P Global Ratings in March 2025.

Competitive Landscape: Differentiating in a Dynamic Market

Alcoa holds a significant position in the global aluminum industry, leveraging its vertically integrated structure to compete against a diverse set of rivals. Compared to diversified miners like Rio Tinto (RIO), Alcoa's pure-play aluminum focus allows for greater agility in responding to aluminum-specific market dynamics, though Rio Tinto benefits from broader diversification and scale. Against specialized aluminum producers such as Norsk Hydro (NHYDY), Alcoa's integrated supply chain, from bauxite to finished aluminum, offers a distinct advantage in ensuring consistent supply and potentially lower overall costs. Alcoa's hydroelectric power assets provide a qualitative edge in energy stability, enabling notably lower manufacturing costs compared to competitors reliant on varied energy sources. This is reflected in Alcoa's TTM EBITDA margin of 16.14%, which compares favorably to some peers.

The company's low-carbon product portfolio, including EcoLum, further differentiates it in a market increasingly valuing sustainability, positioning it favorably against competitors who may lag in eco-friendly innovations. Alcoa's close proximity to customers in North America and Europe, coupled with reliable delivery performance, fosters strong customer relationships. However, Alcoa faces vulnerabilities, particularly its exposure to energy costs and commodity price volatility, and potential gaps in recycling technologies where Norsk Hydro excels.

The U.S. Section 232 tariffs on Canadian aluminum imports have significantly impacted the competitive landscape. While the Midwest premium on Alcoa's U.S. production more than offset the net unfavorable impact of tariffs on Canadian imports in Q3 2025, the tariffs have disrupted traditional trade flows. The U.S. faces a substantial primary aluminum supply deficit of approximately 4 million metric tons annually, with Canada historically supplying about 3 million metric tons. Alcoa actively engages with policymakers to highlight the efficiency of Canadian aluminum flowing into the U.S. and the potential for trade flow disruptions, which could see metal rerouted to Europe while the U.S. imports from other regions.

Outlook and Risks: Charting the Course Ahead

Alcoa's outlook for the remainder of 2025 and beyond reflects a blend of strategic optimism and cautious realism. For Q4 2025, the Alumina segment anticipates improved performance due to the absence of asset retirement obligation charges, higher shipments, and lower production costs. Full-year 2025 Alumina segment production and shipments are projected to remain between 9.50-9.70 million metric tons and 13.10-13.30 million metric tons, respectively. The Aluminum segment, however, expects increased tariff costs on higher U.S. imports from Canada, restart inefficiencies at San Ciprián, and unfavorable energy impacts, partially offset by higher shipments. Full-year 2025 Aluminum segment production and shipments are expected to range between 2.30-2.50 million metric tons and 2.50-2.60 million metric tons.

Key financial guidance for 2025 includes a reduced interest expense outlook of $175 million, a revised total CapEx of $625 million (down from $675 million due to less spending on Australian mine moves), and zero payment of prior-year income taxes due to the Australian tax refund. Total asset retirement obligation (ARO) and environmental spend is expected to increase by $20 million to approximately $260 million. The restart of the San Ciprián smelter is targeted for completion by mid-2026, while Australian mine plan approvals are now expected by the end of 2026, with new mining regions commencing no earlier than 2029.

Despite these positive developments, Alcoa faces inherent risks. Global economic conditions, volatility in aluminum and alumina demand and pricing, and disruptions from non-market forces remain significant concerns. Rising energy costs, raw material availability, and geopolitical factors, including ongoing regional conflicts, could impact operations. The company is also exposed to risks related to climate change legislation, labor market conditions, and potential goodwill impairment. The impact of the EU's Carbon Border Adjustment Mechanism (CBAM), expected in 2026, could raise European premiums by $40-$50 per ton, offering a slight positive, though carbon costs will also increase.

Conclusion

Alcoa Corporation is undergoing a strategic transformation, leveraging its integrated global operations and technological advancements to solidify its position in the evolving aluminum market. The company's strong Q3 2025 financial performance, driven by strategic asset optimization and favorable market dynamics, underscores its resilience. With disciplined capital allocation focused on debt reduction and targeted investments in low-carbon production and critical minerals, Alcoa is actively shaping its future.

While challenges such as market volatility, U.S. tariffs, and permitting delays persist, Alcoa's foundational strengths in its integrated supply chain, competitive energy sources, and commitment to innovation provide a robust framework for long-term value creation. The company's ability to adapt to changing trade policies and capitalize on the growing demand for sustainable aluminum positions it as a compelling investment opportunity in a critical global industry.