Is Century Aluminum's Recent 84% Rally a Legitimate Long-Term Buy Opportunity?

In the volatile world of industrial commodities, Century Aluminum (CENX) has emerged as a standout performer in 2025. Following a staggering 84% rally in share price over the past year, investors are grappling with a critical question: Is this surge a fleeting market overreaction, or does it reflect a fundamentally undervalued business poised to capitalize on industry tailwinds? To answer this, we must dissect the company's Q3 2025 earnings, its strategic positioning in a structurally weak U.S. aluminum market, and the valuation implications of its ambitious growth plans.

Q3 2025 Earnings: A Tale of Resilience Amid Challenges

Century Aluminum's Q3 2025 results revealed a mixed but ultimately encouraging picture. The company reported a net income of $15 million and an adjusted net income of $58 million, outperforming many expectations despite operational headwinds, according to a slide deck. A key bright spot was the protection of its Jamaican refinery from Hurricane Melissa, avoiding costly disruptions. Meanwhile, the Mount Holly smelter's power agreement extension through 2031 provides a critical foundation for restarting 50,000 metric tons of idle capacity-a project now on track for Q2 2026, as noted in the slide deck.

However, challenges persist. The Grunertoni smelter's transformer failures caused a temporary production halt, with a 11–12 month timeline for resolution, as reported in the slide deck. Energy costs also spiked due to a warmer-than-average summer, dragging down adjusted EBITDA. Yet, the company's liquidity position remains robust, with $488 million in total liquidity (including $151 million in cash reserves), according to the earnings call, providing a buffer to navigate these short-term issues.

Market Fundamentals: A Structural Tailwind for U.S. Producers

The U.S. aluminum market is in a dire structural deficit, with annual demand outpacing domestic production by approximately 4 million tonnes, according to the slide deck. This gap has been exacerbated by global inventory levels hitting historic lows (just 47 days of supply) and the LME aluminum price reaching a multi-year high in Q3 2025, as noted in the slide deck. For Century Aluminum, these conditions are a double-edged sword: while higher energy costs weigh on margins, elevated LME prices and delivery premiums added $48 million to Q3 EBITDA, as reported in the slide deck.

The Section 232 tariffs, which impose duties on imported aluminum, further tilt the playing field in favor of domestic producers like Century, according to the slide deck. These tariffs not only shield U.S. operations from cheaper foreign imports but also justify higher pricing power for companies with secure supply chains, as noted in the slide deck.

Strategic Initiatives: Scaling Production and Shareholder Returns

Century's long-term value proposition hinges on its ability to expand domestic production. The $50 million Mount Holly restart project is a cornerstone of this strategy, with full production expected by Q3 2026 and an incremental $25 million in quarterly EBITDA at current prices, as noted in the slide deck. This expansion aligns with the U.S. market's 10% output gap, positioning Century to capture a larger share of a tightening supply landscape.

Equally compelling is the company's capital allocation framework. Shareholder feedback favors buybacks once net debt targets in 2026 are met, as noted in the slide deck, suggesting a disciplined approach to returning capital. With $488 million in liquidity, Century has the flexibility to balance growth investments with shareholder rewards-a rare combination in capital-intensive industries.

Valuation Analysis: Is the Rally Justified?

To assess whether Century's rally reflects mispricing, we turn to discounted cash flow (DCF) analysis. While the company has not disclosed its specific discount rate, analyst estimates provide a proxy. B. Riley Research projects full-year 2025 EPS of $1.56 and 2026 EPS of $3.10, implying a 100% growth rate, according to a MarketBeat alert. Assuming a conservative discount rate of 8–10% (in line with industry averages for metals companies), Century's current valuation appears anchored to these optimistic cash flow expectations.

The key question is whether these projections are achievable. The Mount Holly restart alone could add $100 million in annual EBITDA by mid-2026, as noted in the slide deck, while the U.S. deficit and LME pricing trends suggest sustained demand. Even if growth slows post-2026, the company's liquidity and strategic flexibility provide a margin of safety.

Risks and Considerations

No investment thesis is without risks. The Grunertoni outage and energy cost volatility underscore operational vulnerabilities. Additionally, the global aluminum market's shift from deficit to surplus in Q3 2025 raises questions about the durability of current pricing, as noted in the slide deck. However, these risks are largely short-term. The U.S. deficit remains structural, and Century's power agreements and Section 232 tariffs provide a competitive moat.

Conclusion: A Rally with Legs

Century Aluminum's 84% rally may appear steep, but it is underpinned by a compelling confluence of factors: a structurally weak U.S. aluminum market, favorable LME pricing, and a clear path to expanding domestic production. While near-term operational challenges exist, the company's liquidity, strategic initiatives, and alignment with industry tailwinds suggest the rally is just the beginning. For long-term investors, the question is not whether Century is overvalued, but whether the market has fully priced in its potential to dominate a tightening U.S. supply landscape.