CRU: The Aluminum Can’s Renaissance: Is It Enduring?

Can manufacturers were consolidating, with Ball and Ardagh acquiring Rexam assets in 2016. The other major beverage can producer, Crown, was closing older capacity in the face of flat demand. During 2017-2018, year-on-year beverage shipments were unchanged at 93 billion units.

The sheet mills saw the handwriting on the wall and began to aggressively rotate capital investment and capacity into the far more lucrative automotive body sheet markets.

Margins throughout the supply chain were sub-par and it was a buyer’s market, with can prices (expressed in dollars per 1,000) and can stock rolling margins (in cents per pound over U.S. Midwest primary ingot) stagnant.

New Demand and Market Share Shifts Have Changed the Dynamic

The story began to change in 2019 and really accelerated in 2020. Beverage shipments in 2019 rose 3.5% year on year to 97.2 billion units and in 2020 CMI estimated that can shipments rose 6.2%. Demand was so robust that new, empty aluminum cans were being imported from Brazil and the Middle East to meet filler demand. Ball Corp., in its first-quarter 2021 earnings report, reported shipments up 8% year on year.

What lead to this turnaround? These are the leading drivers:  

1. COVID-19 lockdowns and the severe constriction in on-premise consumption of beverages sent off-premise at-home consumption much higher. This demand was met by aluminum 24- and 36-pack cases going into so-called “pantry hoarding.”

2. New beverage demand was emerging from hard seltzers, energy drinks, cocktails, and even wine in cans.

3. Consumer backlash against PET in carbonated soft drinks, still and carbonated water compelled brand-owners to shift packaging towards aluminum. Ten years ago, people would laugh if you said still water in aluminum cans would grow. Today, Dasani and Aquafina are in cans and demand is growing. PET bottle bans are popping up in some jurisdictions (San Francisco, New York) and the plastics industry is scrambling to find means to boost their recycling rates, which languish around 25% (versus aluminum at 50%, which is still NOT good enough)

4. The aluminum can has become very much in vogue with micro-brewers, who find it keeps the product fresher longer. It’s easier to ship, there’s obviously less breakage and they can be very creative with the graphics on the cans. The advent of mobile, small-volume canning systems has allowed micro-brewers to can beer at their doorstep.

5. Specialty aluminum cans are growing fast. Traditionally, the 12 ounce/340 millimeter can was the standard “commodity” unit of the industry. Today, about 45-50% of production is devoted to larger 16- and 24-ounce sizes, also so-called slim or sleek cans.

Will Rolling Capacity be Sufficient to Meet the Higher Demand?

Ball reports it will add 12 billion units of capacity in 2021, on the heels of adding 7 billion units of capacity in 2020. By the end of 2023, Ball expects to have added 25% more capacity to its 2019 baseline capacity of 100 billion units on a global basis.

They are not alone. Leading can line manufacturers such as Stolle indicated their backlog of can line orders extends three years into the future. New can lines are cropping up across North American to meet this surging demand.

CRU estimates can stock demand to grow at roughly 4% per annum through 2028 in North America.

The burning question is, will the can sheet capacity be there to support this can growth?

We expect to see can stock production rise to the challenge. First, Arconic will be returning to the market during 2021-2022 at its Alcoa, Tenn., mill. This mill was out of the market due to a non-compete legacy provision from the corporate split of Alcoa/Arconic in November 2016. That mill was producing nearly 700 million pounds.

TriArrows Aluminum (owned by UACJ Japan) is ramping up new cold mill capacity at its Logan County, Ky., plant and that should add capacity. Kaiser has now acquired Alcoa’s can stock plant at Warrick, Ind. There remains speculation that they might consider bringing their Trentwood, Wash., mill back into can sheet production. That decision may rest with the assessment of how long the aerospace sheet market remains soft, as Trentwood is devoted to that segment. This would be a major capital decision, coming on the back of their $687 million purchase of Warrick. They may take some time to digest this purchase before allocating more capital to can sheet.

The market continues to watch Braidy/Unity Aluminum with interest. This greenfield project in Ashland County, Ky., has been under development for over three years with no meaningful construction yet. They continue to advertise capacity of about 725 million pounds and are still raising capital to commence serious construction. They have talked about getting into can sheet, but at this point in time any capacity before 2024 would be a stretch, assuming they announce major capital injections soon.

Imports continue to play a key role. Can sheet from Japan, Saudi Arabia, South Korea, Thailand and China continue to flow into North America. The Chinese have essentially taken over the Mexican can sheet market, electing to divert their exports here to avoid Section 232 and 301 exposure. U.S. can makers have  effectively used exemptions from Section 232 to land the non-Chinese production into the U.S. They will undoubtedly continue to press Washington for more liberal exemptions from Section 232. It’s also not unreasonable to expect that if absolute metal prices remain elevated, a strong lobbying effort for the total suspension of Section 232 will come to pass. 

Greg Wittbecker joined CRU in January 2018 after retiring from Alcoa, where he was Vice President of Industry Analysis and Managing Director of Alcoa Beijing Trading, based in Shanghai, China. His career spans 35 years in the aluminum industry, having also held senior commercial and management roles at Cargill, Wise Metals and Koch Supply and Trading. Greg brings perspective on the entire aluminum supply chain from bauxite to aluminum finished products and will be a regular contributor to SMU going forward. He can be reached at gregory.wittbecker@crugroup.com

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