JPMorgan Cuts Alcoa Rating Citing Peaking Aluminum Prices Despite Year-Long Rally

Alcoa (NYSE: AA) has been a strong performer, with shares climbing 74% over the last 12 months. However, JPMorgan analyst Bill Peterson has just taken a fresh look, shifting the company's rating to underweight from neutral. This move comes despite boosting the price target to $50 from $45, signaling a potential downside of roughly 20% from recent levels.

Peterson points out that Alcoa's shares are now trading significantly above historical valuations tied to spot prices-more than five times the usual level. While management's efficiency gains and cost controls have earned praise, the analyst sees this as a risk-reward imbalance at current prices. The exuberance that lifted shares so far might have run its course.

Key concerns revolve around shifting demand-supply dynamics. Chinese aluminum inventories appear to have creeped up by 15% this month compared to December 2025, according to JPMorgan. This rise suggests that Chinese buyers are pushing back against higher prices, dampening import demand. Additionally, robust aluminum output from Indonesia places further pressure on prices.

Peterson expects these factors to create a scenario where aluminum prices diverge from copper and essentially plateau, which could weigh on Alcoa's stock. While the current market climate still favors a risk-on stance, especially early in the year, anticipations of increased supply later might mute further gains for Alcoa.

Trade policy adds another layer of complexity. The potential for relief on Section 232 tariffs remains uncertain, with ongoing USMCA negotiations likely causing delays. JPMorgan describes tariff relief as a "call option," hinting at its speculative, unpredictable nature in the near term.

Longer-term developments like improved ore grades at Alcoa's bauxite mines are not on the immediate horizon, with JPMorgan marking 2028 or beyond for meaningful progress. Likewise, talks of asset sales that might inject cash into the company haven't panned out as hoped, with near-term returns expected to fall short of the $500 million to $1 billion targets set back in 2023.

Even with all these challenges, it's worth noting that Alcoa's run has been impressive. But the questions JPMorgan raises about inventory levels, supply gluts, and policy uncertainties suggest traders have reasons to rethink the sustainability of the rally. Will aluminum prices really hold steady, or is a correction looming?