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Investing.com -- UBS cut its rating for Alcoa (NYSE:AA) Corp. to Neutral from Buy on Thursday, warning that the outlook for alumina remains weak and the company’s valuation is no longer compelling following a recent stock rebound.

“We remain constructive on the medium-term outlook for aluminium prices, but believe alumina is likely to remain lower for longer,” UBS analysts wrote. 

They added that “near-term upside in LME aluminium will be capped by softening demand due to: (1) trade war uncertainty impacting end demand; (2) moderation/reversal of pre-tariff buying.”

Alcoa shares have rallied about 30% off recent lows, but UBS said that move has outpaced the recovery in underlying commodity prices. 

“In our view, [the] 2026 valuation is fair and risk vs reward balanced,” the analysts said, maintaining a $31 price target.

UBS also questioned whether Alcoa stands to benefit from a reduction in U.S. tariffs. “It remains unclear if AA will directly benefit,” the bank’s analysts wrote, noting that “de-escalation of reciprocal does not necessarily mean 25% section 232 tariffs on US aluminium imports will be modified.”

Furthermore, concerns persist around Alcoa’s San Ciprián operations. The smelter is projected to be “$70-90m EBITDA -ve&$100-120m FCF -ve,” and while ramp-up plans are underway, UBS said the added supply “into a weak demand environment is not helpful for the European aluminium market.”

UBS added that while the refinery had been cash-positive in the first quarter, falling alumina prices mean it “will be cash -ve from 2Q.” 

A resolution that reduces cash burn “appears unlikely,” and even achieving cash neutrality at the smelter by 2026 will likely not offset persistent losses at the refinery, according to UBS.

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