Rising Costs & Expenses Pressure Alcoa: What's the Road Ahead?

Alcoa Corporation AA has been grappling with rising costs and expenses over time. AA reported an uptick in costs and expenses during 2025. The company’s cost of sales rose 5.9% year over year in 2025. Alcoa’s selling, general and administrative (SG&A) expenses also increased 8.7% year over year in the same period.

Energy continues to be one of the largest cost components for the company, representing about 24% of alumina refining production costs and 24% of primary aluminum production costs in 2025. Given the energy-intensive nature of aluminum smelting, fluctuations in electricity and natural gas prices remain a key risk factor.

Raw material inputs also add to cost pressures for the company. For each metric ton of alumina produced, Alcoa consumes 2.2-4.0 metric tons of bauxite and 80-130 kilograms of caustic soda. Also, aluminum production requires 1.91-1.94 metric tons of alumina and 13.26-16.82 megawatt-hour (MWh) of electricity per metric ton. Volatility in caustic soda, calcined petroleum coke and other materials’ price could weigh on production cost.

The company is also incurring higher capital spending tied to environmental compliance and asset optimization. In 2025, Alcoa spent $140 million on environmental control projects. The company expects to spend around $170 million in 2026. Also, restart activities at facilities such as San Ciprián and Alumar may temporarily elevate operating expenses.

Despite cost pressures, Alcoa is focusing on operational efficiency, renewable energy usage and disciplined capital allocation to protect margins. However, sustained volatility in energy and raw material prices could continue to pose near-term profitability challenges.

AA’s Peer Performance

Among its major peers, Constellium SE CSTM is facing cost pressure. Constellium’s cost of sales increased 13.5% in 2025. Constellium’s SG&A expenses rose 6.1% year over year in the same period.

The escalating costs and expenses are also a concern for Ryerson Holding Corporation RYZ. Ryerson’s cost of sales rose 0.7% year over year in 2025. Ryerson’s warehousing, delivery, selling, general and administrative expenses also increased 1% year over year in the same period.

AA’s Price Performance, Valuation and Estimates

Shares of Alcoa have surged 52.1% in the past three months compared with the industry’s growth of 56.1%.

From a valuation standpoint, AA is trading at a forward price-to-earnings ratio of 12.23X, above the industry’s average of 12.22X. Alcoa carries a Value Score of A.

The Zacks Consensus Estimate for AA’s 2026 earnings has increased 21% over the past 60 days.

The company currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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