Aluminum got more expensive, Alcoa earns billions. Why are the shares still so cheap?

Alcoa just reported record quarterly revenue of around $4 billion, adjusted EBITDA more than doubled in three months, and at the same time the company is launching a $4.1 billion acquisition that should make it the largest independent aluminum producer in the Western Hemisphere. Yet the stock trades at a P/E of around 11, a valuation far below levels seen in past cycles. The market either overlooks the quality of what is happening inside the company, or correctly senses that current profits are just a temporary peak in the cycle, to be followed by a return to lower margins and higher debt.

How the company actually makes money

Alcoa $AA is an integrated producer across the entire aluminum chain.

The economics differ at each step:

1. Bauxite: a low-margin raw material. Value is created mainly through low mining costs and proximity to its own refineries.

2. Alumina (aluminum oxide): sensitive primarily to energy prices and to the so-called API index (Alumina Price Index), which behaves more volatile than the aluminum price itself.

3. Primary aluminum: produced by smelting in electrolytic cells, so-called smelters. This is where the largest margin and the greatest cyclical sensitivity are concentrated, because the key input is not bauxite or alumina, but electricity. Producing one ton of aluminum requires approximately 14,800 kWh, so energy accounts for a third to half of production costs.

Alcoa $AA therefore concentrates smelting capacity in locations with cheap hydropower, specifically in Canada, Norway and Brazil. According to Wood Mackenzie data, this places it in the cheaper half of the global cost curve, though far from its bottom, where subsidized Gulf smelters sit.

This setup leads to a key characteristic of the whole business: Alcoa's profit can change dramatically without any change in production volume. A move in aluminum or alumina prices is enough for margins to quickly spill into EBITDA, which can fall below $300 million in one quarter and climb above $900 million a year later without the company producing significantly more metal.

Why are profits rising so sharply right now?

The last year showed exactly this dynamic. In the second quarter of 2025, the company reported adjusted EBITDA of only $313 million, hurt by low aluminum and alumina prices and U.S. import tariffs on Canadian aluminum. In the second quarter of 2026, adjusted EBITDA reached $901 million, nearly triple, and the aluminum segment alone posted record adjusted EBITDA of $1.1 billion with a 32.3 percent margin.

Main causes:

• Higher realized metal prices. In the first quarter of 2026, it reached about $4,209 per ton versus $3,213 a year earlier, an increase of about 31 percent, also driven by a higher U.S. premium after Section 232 tariffs rose to 50 percent in June 2025.

• Restarts of previously idled capacity at San Ciprián in Spain, Alumar in Brazil and Lista in Norway, which increased supply.

• A brake on the alumina side. The alumina segment, by contrast, remained under pressure due to outages at the Pinjarra refinery in Australia after Cyclone Narelle, which led to a cut in the full-year production outlook to 9.5 to 9.6 million tons.

The company thus stands on two legs: cyclically high aluminum prices and operational improvement from the return of idled capacity. The second leg is largely repeatable even at lower prices; the first depends on a market that Alcoa itself does not control.