Investing.com -- UBS has upgraded Alcoa shares to “Buy” from “Neutral,” raising its price target to $80 per share from $75, citing expectations that prolonged disruptions to Middle East aluminium production will keep prices and premiums elevated for years.

The bank said ongoing geopolitical instability in the Middle East could remove more than 3 million tonnes of annual aluminium supply, tightening global markets and offsetting weak near-term demand. UBS believes the resulting shortage is not fully reflected in Alcoa’s valuation.

UBS estimates the Middle East accounts for roughly 9% of global aluminium output and nearly a quarter of ex-China production. Several major smelters have either shut down or suffered operational damage due to the regional conflict.

The bank forecasts aluminium prices will remain above $3,000 per tonne over the next one to two years despite softer industrial demand and high inventories in China.

UBS projects a 1.8 million tonne global aluminium deficit in 2026, driven by falling supply and continued demand growth linked to electric vehicles, renewable energy infrastructure, and power grids.

At the same time, UBS remains cautious on alumina prices, saying fundamentals do not support a sustained rebound, though downside risk appears limited because prices are already near the industry cost curve.

UBS expects Alcoa’s financial position to improve significantly as higher aluminium prices boost earnings and free cash flow. The bank forecasts adjusted net debt could fall below $500 million by the end of 2026, well below the company’s target range of $1.0–1.5 billion.

That balance sheet improvement could pave the way for shareholder returns, including potential share buybacks in the second half of 2026. UBS also noted reports that Alcoa is in advanced talks to sell its idle Massena East smelter in New York to digital asset firm NYDIG, a move that could further accelerate cash returns.