Alcoa's Q3 2025: Contradictions Emerge on Aluminum Tariffs, Smelter Costs, and Spanish Operations

The above is the analysis of the conflicting points in this earnings call

Date of Call: None provided

Financials Results

• Revenue: $3.0B, down 1% sequentially
• EPS: $0.88 per share, increased sequentially (adjusted net loss of $0.02 per share)

Guidance:

• Interest expense outlook for 2025 decreased to $175M
• Total 2025 CapEx reduced to $625M (from $675M)
• Prior-year tax payment for 2025 set to $0 due to ATO refund
• Total ARO & environmental spend for 2025 increased by ~$20M to ~$260M
• Q4 alumina segment expected to improve by ~ $80M (absence of ARO charges, higher shipments, lower maintenance)
• Q4 aluminum segment expects ~ $20M sequential headwind (San Ciprian restart inefficiencies, lower 3rd-party energy sales), partly offset by higher shipments
• Expected Q4 tariff costs to increase by ~ $50M; aluminum-segment alumina costs favorable by ~$45M
• Q4 operational tax expense expected to be ~$40–$50M

Business Commentary:

• Operational Performance and Safety:
• Alcoa Corporation achieved record aluminum production at five of its smelters year-to-date.
• The tragic incident at the Alumar smelter serves as a reminder of the critical importance of safety in all operations.

• The incident and subsequent investigation led to global safety measures being implemented to prevent similar incidents in the future.

• Market Dynamics and Performance:

• The Midwest premium rose to a level that covers the full cost of logistics for importing aluminum into the U.S., reducing the impact of Section 232 tariffs.

• Alumina prices have declined significantly due to ample spot availability and refinery expansions in Indonesia and China, leading to a short-term imbalance.

• Strategic Investments and Partnerships:

• Alcoa announced a significant long-term energy contract and a $60 million investment in the anode bake furnace at its Massena operations.

• The company is spearheading a gallium plant development in Australia, co-located at its Wagerup Refinery and supported by governments from the U.S., Australia, and Japan.

• Financial Results and Guidance:

• Third-quarter net income attributable to Alcoa was $232 million, an increase from $164 million in the previous quarter.
• The increase was largely due to a gain on the sale of their interest in the Modern Joint Venture and favorable mark-to-market changes in Modern shares.

Sentiment Analysis:

Overall Tone: Neutral

• Management noted "strong operational performance and stability" and record aluminum production at five smelters, reported Q3 net income attributable of $232M (incl. $786M gain on Modern JV) and adjusted EBITDA of $270M; they reduced 2025 CapEx and expect Q4 sequential improvement while flagging one-time charges (Kwinana closure) and higher tariff impacts.

Q&A:

• Question from Chris Lefemina (Jefferies): You’re approaching your net debt target — how do you think about potential M&A opportunities and capital returns? Any focus areas?
  Response: Priority is paying down remaining debt to reach net-debt target; once within range they will evaluate shareholder returns and selectively pursue M&A only where clear synergies exist.

• Question from Lawson Winder (Bank of America): Can you provide background on the U.S.-Australia gallium partnership — was it Alcoa-driven and what’s the timeline/approvals to first production?
  Response: Initiative began with Japanese offtake discussions; governments joined; Wagerup selected; aiming for first metal by end‑2026 on an aggressive timeline.

• Question from Timna Tanners (Wells Fargo): Any update on Canada-U.S. negotiations/possible carve-outs and reconsideration of domestic capacity expansion (e.g., Warwick restart)?
  Response: Alcoa is supplying trade‑flow data to governments; long‑term U.S. energy at $30–$40/MWh not broadly available yet; Warwick restart (~$100M, 1–2 years) is under evaluation but won’t be funded based solely on tariffs.

• Question from Carlos de Alba (Morgan Stanley): Any color on gallium project economics and does it affect Western Australia permitting? Also, any intention to re-enter rolling?
  Response: Gallium plant is small, government‑backed with cost‑plus offtake; it does not affect current Huntley/Punjara approvals; Alcoa has no interest in re‑entering the rolling business.

• Question from Daniel Major (UBS): Will the offtake be cost‑plus for all volumes and what is JV ownership / Alcoa’s equity share? Also, confirm San Ciprian steady state timing?
  Response: Offtake is cost‑plus across volumes per the MOU; JV ownership is 50% Japanese / 50% U.S.+Australia+Alcoa with Alcoa <50% (Alcoa expects ~5t of 100t); San Ciprian target full run‑rate mid‑2026 with profitability back half 2026.

• Question from Alex Hacking (Citi): With the Midwest premium (MWP) back up, are Canadian shipment flows returning to normal into the U.S.?
  Response: About 135k tonnes were redirected earlier in the year; with the Midwest premium at import parity shipments are reverting to normal U.S. flows.

• Question from Nick Giles (B. Reilly Securities): What does the administration need to see to resolve tariffs with Canada, and which Alcoa assets remain underperforming or have upside?
  Response: Alcoa is providing policymakers market‑flow data (U.S. structural short ~4Mt/year, Canada supplies ~3Mt); operations improved overall, with remaining improvement opportunities in Brazil stability and specific sites like Massena cast house and Mosjoen.

• Question from John Tumazos (John Tumazos Very Independent Research): Details on the 10‑year Massena agreement — competition for power, new capacity, and whether old plant infrastructure could be reused?
  Response: 10‑year NYPA contract (plus two 5‑year extensions) secures competitive low‑cost green power enabling a $60M bake furnace investment; Massena East has no potline left but retains electrical infrastructure suitable for data‑center redevelopment.

• Question from Glyn Lockhart (Bear & Joey): Public review period for WA mine approvals — any surprises and specifics on Kwinana closure costs / land value/zoning?
  Response: EPA public review returned ~60k submissions (~2k unique) focused on water proximity and rehabilitation; Alcoa will respond and has agreed to setbacks; Kwinana closure costs are elevated due to large water‑management RSAs, but site is industrial with port/rail and expected to be valuable for redevelopment.

• Question from Bill Peterson (JP Morgan): Has hyperscaler interest in idled sites picked up and how should we view end‑market demand patterns in the U.S.?
  Response: Hyperscaler/AI interest remains strong; Alcoa is evaluating idle sites and infrastructure for repurposing; end‑market weakness is concentrated in automotive while packaging and electrical remain healthy — not broad demand destruction.