By Stuart Burns
Aerospace may be down, automotive is coming back, albeit going through immense change from internal combustion engine (ICE) to electric vehicles (EVs), but one sector of the aluminum market that is brewing up a storm is the aluminum can market.
Aluminum can market tightens amid pandemic
The media has been awash with reports for months now that the aluminum can market is really tight. As lockdowns hit this year and bars either closed or saw falling attendance, consumers switched to supermarkets and liquor stores for their soft and beer beverages.
Beer and soda sales have held up well and are actually increasing for some. But where brewers and drinks producers sold volume through hospitality outlets and delivered in kegs, they now have to meet demand in six-packs from supermarket shelves.
The switch to aluminum cans has been unprecedented. “For the most part, the North American can industry is sold out for the next 24-36 months, and we don’t see the supply chain catching up to real demand until 2025-26,” Credit Suisse (NYSE:CS) said in a recent report.
According to SPGlobal, U.S. producer shipments of aluminum can stock for the domestic market in the second quarter rose 5.5% year over year to 912.5 million pounds. Meanwhile, in the first quarter, Aluminum Association data show U.S. imports of aluminum can sheet reached 118.18 million pounds. That figure compares with 71.59 million pounds in Q1 2019 – a 65% jump.
And therein lies the problem.
Can making capacity falls short of demand
Can stock is not fundamentally in short supply. Domestic mills are running hard and imports are making up the shortfall. Despite tariffs on some origins, buyers can get metal for a price.
The problem is there is not enough can making capacity.
Crown, a major producer, said it is only able to meet demand. While lockdowns have depressed Latin American demand, demand is coming back. As such, there are supply issues building for the U.S. in 2021.
Aluminum can market to ramp up?
Can makers are responding.
However, it takes time to invest, install and ramp up production.
According to Ball Corp. (NYSE:BLL), the world’s largest maker of cans, the U.S. is short 8 billion to 10 billion cans this year.
The Columbus Dispatch reports that to help combat the shortage, Ball last month announced it will build a new aluminum can factory in Pittston, Pennsylvania. The factory is expected to begin production in the middle of 2021.
But even so, Ball CRO John Hayes is quoted as saying, “North American beverage can demand continues to outstrip supply.”
Changing market trends
Some brewers who are seeing stock-outs of their brands on the shelves are hoping they can secure sufficient supply to see them through until the tight supply market eases.
This is apparently more than just a pandemic-induced trend.
The market has been going through a structural shift for the last few years. Consumers are progressively favoring more easily recycled aluminum cans over glass bottles and, particularly, plastics. This trend is not going to go away even if the pandemic does. The two combined will constrain can supply severely for much of next year, if not beyond.
That’s good news for can makers and a bright spot for can stock sheet mills, usually a business with razor-thin margins. They should be seeing a better return in such a buoyant market.
Editor’s Note: The summary bullets for this article were chosen by Seeking Alpha editors.