UBS Group AG raised its rating on Alcoa from Neutral to Buy on May 22, increasing the price target from $75 to $80. The firm believes the valuation of Alcoa does not yet fully reflect the upward pressure on aluminum prices and premiums resulting from prolonged supply disruptions in the Middle East.
UBS analyst Daniel Major noted in a report that ongoing geopolitical instability in the Middle East has removed over 3 million metric tons of annual aluminum supply from the market. This is expected to tighten the global supply-demand balance and offset the impact of recent softness in industrial demand. UBS estimates that the Middle East accounts for approximately 9% of global aluminum production and nearly a quarter of production outside China.
UBS forecasts that the global aluminum market will face a supply deficit of around 1.8 million metric tons by 2026, driven by the supply decline and sustained demand growth from electric vehicles, renewable energy infrastructure, and grid construction. The firm anticipates aluminum prices will remain above $3,000 per metric ton over the next one to two years.
Concurrently, UBS maintains a cautious outlook on alumina prices, viewing the fundamentals as insufficient to support a sustained rebound. However, with prices near the industry cost curve, downside risk is seen as limited. UBS projects that rising aluminum prices will improve Alcoa's earnings and free cash flow, potentially reducing its adjusted net debt to below $500 million by the end of 2026. This would be significantly lower than the company's target range of $1 billion to $1.5 billion.
The strengthening of the balance sheet could pave the way for enhanced shareholder returns, including a potential share repurchase program in the second half of 2026. Following the upgrade announcement, Alcoa's stock price rose approximately 8.94% during trading on May 22, reaching $72.195.
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