Global can stock market moving East

Global can stock market moving East
The ring-pull tab on an aluminium drinking can. Source: Wikimedia

Global demand for beverage cans will grow~3-4% in 2016 and a similar growth trend is expected up until the end of this decade. This growth is being driven largely by increased consumption in emerging markets.

Together, the US and Canadian markets use approximately 94 billion aluminium cans per year, making North America the largest market for can stock in the world, according to UACJ. Around 60% of that amount are cans for carbonated beverages, the consumption of which have been declining in recent years, thereby resulting in sluggish demand. The remaining 40% are cans for beer, the demand for which remains strong. A recent study shows that 55% of all beers are packaged in aluminium cans, which is up from 50% five years ago. The 5% growth came at the expense of the glass bottle, whose usage fell from 40% to 35%.

In order to respond to this intense demand, all American aluminium rolling mills combined produce of more than 1.9 million tonnes (Mt) of can stock each year, of which approximately 1.6 Mt are used in North America. Compared to the Japanese can stock market, the size of the American market is some four times larger. Despite falling demand, by the end of this decade the US and Canadian market will still be producing 1.47 Mt of aluminium cans, according to CRU. However, can making is expanding strongly in Mexico and this market will soon exceed 200,000 t/y.

The world’s largest aluminium can producer is Logan Aluminium Inc. based in USA, jointly operated by Tri-Arrows Aluminium Inc. (owned by Japanese UACJ) and Novelis, the world’s largest can stock manufacturer. Logan Aluminium is also one of most cost competitive can producers in the world.

The can stock and beverage can markets have been shifting to emerging markets in recent years. Parallel to that, the growing trend is also shifting from the production of can stock to production of auto body sheet (ABS), before all in the USA and European Union.

Can stock capacity will expand in China, South East Asia and Saudi Arabia by end of the decade. However, capacity will fall in the USA as rolling mills shift production from can stock into ABS. This is expected to move the can stock market from surplus to deficit in the region, while the conversion fees for can stock would start to rise by end of this decade. Thus can makers will face a much tighter domestic market and will need to look for alternative offshore suppliers in the medium term, with Chinese mills being most probable solution. However, even with more Chinese can stock on the market, it is likely that pricing in the can stock sector will rise as domestic rollers focus on automotive sheet.

US and Canadian shipments of aluminium rolled products to the consumer durables market increased by 4.8% in 2015, to 224,000 tonnes, according to CRU. Between 2015 and 2019, demand is expected to increase at a 3.1% CAGR, and will total 253,000t in 2019.

Currently CRU sees moderate delays from automotive OEMs in implementing further significant widespread conversions, compared to the rush of announcements witnessed in the last few years, but this will be temporary and CRU expects strong growth over the next decade as automakers switch to the light metal.

The shifting of hot rolling capacity towards auto body sheet and away from can stock is significant.  Indeed, this switch will not be 1:1 as the metal input requirement and the time needed to roll one tonne of auto body sheet is greater than that of can stock due to the lower yield and slower speeds inherent in rolling auto body. This loss in hot mill time for can stock is set to tighten this market significantly, and the faster the auto body sheet market grows the greater the volume loss will be in can stock availability.

Aluminium rolled products capacity continues to grow in China.  CRU expects Chinese cold rolled and plate capacity to double between 2011 and 2016.  This expansion would be reasonable if the double digit growth in demand seen over the past decade was set to continue. The problem is that demand growth is slowing, and there are real risks that demand will fall even more than expected.  Over the same time period CRU only expects a 13% growth in capacity in the World ex. China.  The major rollers such as Novelis, Aleris and Alcoa are investing heavily in automotive finishing capacity.  This will ensure strong margins in future.

Aluminium rolling costs keep on falling

Production costs of rolling mills are falling due to both lower LME prices and weak energy prices.  According to CRU’s Aluminium Rolling Cost (ARC) model, the costs fell in 2014 and 2015, with 2016 costs likely to continue their downward movement.  However, from 2017 onwards, CRU expects costs to start recovering.

Mills typically source a range of raw materials including primary remelt ingot or liquid, rolling slab, hot rolled coil and a variety of different forms of scrap. Scrap makes up approximately 30-35% of the total raw material mix.  Raw material costs represent approximately 65-75% of a rolling mill’s total costs, therefore the total business costs are closely linked to the LME price.  It has fallen markedly since 2014 and CRU forecasts that prices will weaken further in 2016.

Another important cost component is energy. Rolling mills are currently benefiting from lower energy prices.  Following strong increases in 2010 and 2011, average energy costs have decreased over the past 3 years and cost growth in near future will be limited.  Some rolled products require more energy than others:  for example auto body sheet has to be continuously annealed after the cold rolling stage and end stock requires a coating.  Higher value added products in general require more casting, rolling and finishing time which results in a higher energy consumption.  Therefore, as more plants move into higher value added products, and away from more standard products, the average energy consumption across the industry will trend upwards.

Conclusions

The growing trend is shifting from can stock to production of auto body sheet (ABS), before all in USA and European Union. This is inevitable given the higher margins available in auto body sheet alloys. At the same time can stock capacity will shift from North America to China and Asia.

Thus can makers in North America will face a much tighter market and may need to look for alternative offshore suppliers in the medium term – an increasing probability is that these will be Chinese mills.

The can stock market will experience smaller growth in next five years, of some 3-4 % CAGR global growth, thanks to the growth in China and Asia, while in the rest of the world it is expected to stagnate or even to decrease a little.

 

Author: Goran Djukanović  

April 17, 2016

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Graphs

total can sheet

Total can sheet shipment in USA

Source: Aluminum Association

shipments of can stock

uses