Alcoa this week reported negative free cash flow of US$7 million on its $2.7 billion of second-quarter revenue. A net loss of $402 million, or $2.17 per share, included the $319 million one-off cost of divesting its interest in the Ma'aden Rolling Company (MRC) in Saudi Arabia, and $81 million of other special items.

The company's weak FCF isn't helping reduce its heavy net debt load.

New York investment bank Jefferies says Alcoa's top line and EBITDA were "essentially flat sequentially in 2Q, and free cash flow after distributions to minorities was negative once again".

"EBITDA may have troughed in 2Q as Alcoa does have some operational tailwinds [such as lower maintenance costs, lower caustic soda prices, and higher bauxite and alumina volumes expected in Q3]. However, we are concerned about the risk that sequential weakness in alumina and aluminum prices will offset the benefit of lower costs.

"In the case of aluminium, a capacity overhang globally and limited supply constraints are concerns, especially in an environment where demand is likely to be relatively weak.

"In the case of alumina, a small market surplus has us concerned that prices will continue to drift lower.

"All things considered, the fundamental outlook for these commodities is simply not very good unless global growth accelerates, and, if that happens, we would expect other commodities - such as copper - to materially outperform."

S&P said in its most recent commodity outlook report aluminium prices continued to trend down despite expectations of 1.5-1.7 million tonnes of undersupply on the market and global inventories reaching lows not seen since 2007.

"Our price of $1,800 per metric tonne for the rest of 2019 reflects our view that sentiment from global trade tensions and the potential risks to global growth are weighing on aluminium prices," S&P said.

"We have maintained our price of $2,000/t and $2,100/t for 2020 and 2021, as we believe the fundamentals are robust, underpinned by expectations of a continued supply deficit, low inventory, and solid aluminum demand growth globally.

"At current prices of about $1,750/t, significant capacity is currently producing at a cash loss, which may lead to further capacity curtailments, further supporting a price recovery.

"In addition, while alumina prices have softened in recent weeks, we note the current spot price of about $350/t relative to aluminium prices is still unsupportive for smelters. In our view, a price of about $2,100/t would correspond to a healthier margin for producers and could find support from slowing but continued global economic growth, further reductions in capacity, and slower growth of smelting capacity from China."

Jefferies analysts said they struggled to "see a path to consistent free cash flow generation and, by extension, a stable and sustainable capital returns program from Alcoa unless alumina/aluminium prices go higher".

"Paying down legacy liabilities has been the priority for management, but a lack of free cash flow is a clear hindrance to that goal.

"Capital returns are unlikely to increase until the company's pension deficit is reduced further - the target adjusted net debt of less than $2.5 billion versus current $3.4 billion.

"Alcoa shares are inexpensive based on consolidated EV/EBITDA, but we expect the company to continue to generate low returns on capital [5% in 1H19], and we do not see any meaningful catalysts to excite investors about the Alcoa story within our 12 month investment horizon."

In light of this, Jefferies downgraded its rating from ‘buy' to ‘hold' on the stock, which has dipped 11% since the start of the year to Thursday's $23.41 close, capitalising the company at $4.34 billion. Its shares were at 2.5-times current levels last April.