Tariffs and Smelter Delays Weigh on Alcoa’s Q2 Earnings Despite Strong Cash Flow

• Completed $1.35 billion sale of 25.1% Ma’aden joint venture stake
• Q2 net income of $164 million, adjusted net income $103 million
• Tariff costs of $115 million due to increased U.S. Section 232 tariffs on Canadian aluminum
• San Ciprián smelter restart paused then resumed, completion expected mid-2026
• Cash balance rose sequentially to $1.5 billion with $488 million generated from operations

Operational Resilience Amid Market Pressures

Alcoa Corporation’s second quarter 2025 results reveal a company balancing strong operational execution with the challenges of a volatile market environment. Despite facing lower alumina and aluminum prices alongside increased tariff costs, Alcoa maintained solid production levels, with aluminum output rising slightly to 572,000 metric tons, supported by progress on the Alumar smelter restart in Brazil.

The company’s revenue declined 10% sequentially to $3.0 billion, reflecting the impact of softer commodity prices and tariff-related expenses. Net income attributable to Alcoa was $164 million, down from the previous quarter’s $548 million, while adjusted net income stood at $103 million, excluding special items such as mark-to-market gains and restructuring charges.

Strategic Asset Sale and Cash Flow Strength

A highlight of the quarter was the completion of the sale of Alcoa’s 25.1% interest in the Ma’aden joint venture for $1.35 billion, a transaction expected to generate a gain of approximately $780 million in the third quarter. This divestment aligns with Alcoa’s strategy to optimize its portfolio and strengthen its balance sheet.

Operational cash flow improved markedly, with $488 million generated in the quarter, boosting the company’s cash balance to $1.5 billion. Free cash flow was a robust $357 million, underscoring Alcoa’s ability to generate liquidity despite external pressures.

Tariffs and Smelter Restart Challenges

Tariffs remain a significant headwind, with Alcoa incurring $115 million in costs due to the U.S. Section 232 tariffs on aluminum imports from Canada, which increased from 25% to 50% during the quarter. To mitigate these costs, Alcoa redirected Canadian aluminum shipments outside the U.S. and continues to engage with policymakers on tariff impacts.

The restart of the San Ciprián smelter in Spain, initially paused due to a widespread power outage, resumed after assurances from the Spanish government on grid reliability. However, the delay has pushed the expected restart completion to mid-2026, with an anticipated net loss of $90 million to $110 million in 2025 related to the smelter’s operations and restart costs.

Regulatory and Market Outlook

Alcoa also received a favorable ruling in an Australian tax dispute, removing a potential liability and reinforcing its tax position. Meanwhile, the company awaits mine approval decisions in Western Australia, with timelines extended due to the complexity of environmental assessments and public consultations.

Looking ahead, Alcoa’s 2025 production outlook remains stable, though aluminum shipments are expected to be slightly lower due to the San Ciprián delay. The company anticipates ongoing tariff-related costs in the near term but expects operational efficiencies and cost management to partially offset these challenges.

Bottom Line?

Alcoa’s Q2 results underscore resilience amid tariff pressures and operational delays, setting the stage for a pivotal 2026 as key projects and policy developments unfold.

Questions in the middle?

• How will evolving U.S. tariff policies impact Alcoa’s North American operations in the coming quarters?
• What are the financial implications if the San Ciprián smelter restart faces further delays beyond mid-2026?
• How will the proceeds and gains from the Ma’aden joint venture sale be deployed to drive future growth or reduce debt?