CRU: The Renaissance of the Aluminum Beverage Can

Data from the Aluminum Association shows this:

• 2020 total domestic shipments of can stock supplied to the can market rose 3.3% year on year reaching 3.82 billion pounds.

• Thus far in 2021, January through May shipments are up 3.9%, standing at 1.6 billion pounds.

These numbers were complemented by net imports from China, Japan, Saudi Arabia, South Korea and Thailand that approached nearly 900 million pounds.

Overall, CRU believes that aggregate North American can stock demand for 2021 will rise 6.4%. 2022 prospects remain strong, rising about 5.3%, with the five-year outlook growing around 3% per year.

What’s driving this demand for beverage cans?

The aluminum can market struggled through a decade of stagnant demand up until 2019. Total beverage can shipments clung to a range of 98-100 billion units or the equivalent of about 3.2 billion pounds (as a rule of thumb, 31 cans = 1 pound of can stock).

Beer consumption was flat (no pun intended) and the backlash against sugary carbonated soft drinks (CSD) was taking a toll on consumption.

However, we have now witnessed a key reversal in this trend:

• COVID-19 lockdowns killed on-premises consumption of both beer and CSD, leading to substantial increases in off-premises consumption and so-called “pantry hoarding” as consumers stocked up in case lots.

• Millennials have increasingly rejected buying CSD, still and carbonated waters in PET packaging due to its poor sustainability performance. The recycling rate of PET bottles hovers around 25% (versus 50% for aluminum) and high-profile stories of plastic waste in the oceans is hurting demand. Ten years ago, no one would have considered still water in aluminum cans to be a viable market. Today, major brands such as Aquafina, Dasani and LaCroix are moving into aluminum.

• Micro-brewers are turning to cans enthusiastically because they believe the product can be preserved better, the graphics for advertising are very good, and glass has become too heavy, breakage is high and recycling economics are mediocre

• A host of new markets has emerged for aluminum canned beverages such as hard seltzers, mixed alcohol cocktails and energy drinks.

The demand pull has been so strong in 2021 that the U.S. has been importing empty beverage cans from Brazil, Mexico and Saudi Arabia. That’s an expensive proposition, as you are essentially shipping air in containers.

Are These Demand Trends Sustainable?

Major aluminum can makers such as Ball, Crown Cork, Ardagh, plus new entrants like Can Pack, believe the trend in demand IS real and durable.

After spending the better part of two decades consolidating can-making capacity, can makers are investing BIG capital to gear up for future demand.

Ball will raise its global can-making capacity by 25% by 2026, reaching over 100 billion units.

Others are doing the same. Leading can line manufacturer, Stolle, indicates that they have record backlogs for new can body and end/tab plants. Lead times for new equipment now stretch out two years.

Is There Enough Mill Capacity to Keep Pace with Can Demand?

There has been a great deal of angst in the market about whether the U.S. mills can raise capacity to match the demand growth. Arconic’s Tennessee mill is in the process of returning to the can stock market after a non-compete period with Alcoa expired in 2021. That will be a slow ramp-up, but could eventually provide up to 700 million pounds/year of incremental supply based upon their historic run rates.

Kaiser has acquired Alcoa’s mill at Warrick, Ind. They are still assimilating this major purchase (nearly $700 million for this mill with about 700 million pounds/year capacity). There’s some speculation that Kaiser “might” bring back can stock production at its Trentwood, Wash., mill. However, that decision may depend on the fortunes of the commercial aerospace market, on which Trentwood focuses its efforts. If aerospace, does not recover in 2-3 years, Kaiser might rotate capacity to can stock.

Many people wonder if the automotive market will remain lucrative enough to keep capacity allocated there. When the can stock market faltered in the past decade, major players like Alcoa/Arconic and Novelis left the can stock market for the more attractive returns in auto. Now, people ask, “With can stock demand up and margins substantially higher, will they come back?” Our sense at this point is, NO. Automotive demand for both internal combustion engine and electric vehicles is still growing nicely. Margins are still better than can stock and diversification is still a good move for the mills.

Bottom line, imports will play a pivotal role in balancing the market. CRU expects to see imports rising about 5% in 2022 and thereafter. Can makers and beverage fillers alike are pushing hard for more streamlined Section 232 tariff exemption processes. Given, the tight domestic capacity situation, we expect they will get a sympathetic “ear” from the Commerce Department.

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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