As every investor knows — a stock is cheap, and in decline, for a reason.

Over the last 12 months, the NYSE-listed shares of global aluminum giant Constellium CSTM are down 12%, while rivals like Alcoa Corporation AA, Kaiser Aluminum Corporation KALU and Century Aluminum Company CENX are all up. Alcoa is up 55%. CENX is like crypto aluminum, up 155.8% in a year.

Its price-to-earnings ratio is not bad at 12x, and it has a new $65 million investment in a new aluminum plant being built in Alabama, though that is not expected to be operational until the second half of 2026.

What’s the problem?

As some in Washington might say – it’s Russia’s fault.

That’s sort of true. Constellium makes aluminum products that it casts from aluminum sheets, some of which it imports from Russian-based aluminum company Rusal. Prior to the war in Ukraine, the Europeans loved Russian aluminum – especially Rusal aluminum – because a lot of it is made in factories powered by a hydroelectric dam. This means it is deemed low-carbon friendly aluminum. But Rusal aluminum is facing restrictions and that means Constellium is now paying more for primary aluminum than a year ago and is focusing more on European and U.S. production. European producers are in worse shape as they have reduced primary aluminum production by about 30% over the last five years, likely due to environmental regulations.

Constellation: A Victim of Geopolitics

In April, the U.S. Government imposed a 200% tariff on aluminum products if they contained aluminum sourced from Russia, even if the finished product was made elsewhere. Since March 10, 2023, Washington already had increased tariffs on Russian aluminum products up from the Sectio to 200%, up from the roughly 25% in the Section 232 aluminum tariffs imposed globally by then-president Trump in 2018. The supply of Russian aluminum to the United States is currently zero.

U.S. importers have turned to the Middle East for alternatives, increasing prices by an additional $200 per ton from those sources due to U.S. demand.

Europe is thinking of doing the same. This weighs heavily on Constellium shares for the near term, at least until the European Commission decides on what to do about Russian aluminum imports.

A March 4 article by Reuters put it this way: “The loss of Russian metal would leave Europe with a shortfall of around 500,000 tons. Middle Eastern suppliers will not be able to fully substitute Europe’s shortfall quickly.”

A small group of EU countries keep pushing for tougher measures against Russia, led by Poland and the Baltic states. They want U.S.-style restrictions on aluminum imports. Some EU economies are blocking this move, most likely Germany and France, which rely on imports at least in part to manufacture cars and aircraft.

Restrictions on aluminum could pose a threat to domestic industries, which are already losing out in competitiveness to Asia, according to Chris Weafer, the Chief Executive of Macro-Advisory , an investment research firm and consultancy focused on emerging markets with offices in Washington DC. The EU relies on imports for over 90% of its aluminum needs, with 8-9% coming from Russia.

“The EU is walking a tightrope between the need to increase the sanctions pressure on Russia while at the same time…keeping its own economy and domestic enterprises afloat,” Weafer wrote in an op-ed published by Euro News on Oct. 17.

If there are new sanctions, Weafer said in a report to clients last month, there will be some further Russian imports this year because of residual contracts. But after that, Russian imports “eventually fall to zero for the foreseeable future,” he wrote. If there are no sanctions – which is still possible if big industry in Western Europe get their way – then Weafer thinks Russian imports will fall gradually as more European companies will either choose domestic production or be pressured to import from elsewhere.

Earnings Call To Reveal More This Week

Constellium will have their earnings call on Wednesday, Oct. 23 before the market opens.

Investors are likely to wait and see what Europe does about Russia. Constellium’s long-term prospects, meanwhile, seem okay.

The company’s stock survived the Section 232 steel and aluminum tariffs imposed by the Trump administration in March 2018. Constellium’s share price ended the month at $10.85 per share and hit $12.15 per share in May 2018 despite the higher prices associated at the time with the tariff. Constellium today trades closer to $15.

Alcoa stocks rose last week after an earnings beat. JP Morgan raised its price target from $36 to $39.  That call is too late for investors now. Alcoa has already surpassed that target and was trading over $41 on Friday.

Constellium could see similar fortunes.

Aluminum is one of the metals required for the energy grid and for new EVs and solar. Global demand is set to reach 85 million tons in 2030, up from 66 million tons in 2020. Given tariffs as they are now, it is clear the U.S. sees aluminum as a critical sector worth protecting, so Constellium’s Alabama project should find plenty of demand locally. Longer-term buyers may be rewarded. For now, out of the four big aluminum companies – AA, KALU and CENX – CSTM is the worst performer. Still, it has a better profit margin than Alcoa at 2.35% versus negative 5.14% for Alcoa and Alcoa just got an upgrade.