ALUMINIUM 2007: Innovation takes a stopper off growth

Financial Times
October 9th 2007

By Ross Tieman

It has been an extraordinary 18 months for the aluminium packaging industry. After many years when the quantity of aluminium used in packaging did little more than track growth in developed economies, sales expanded rapidly.

In the first half of 2007, use of aluminium by members of the European Aluminium Foil Association surged by 4.4 per cent, year-on-year.

During 2006, worldwide sales by Rexam, the leading multinational beverage can maker, rose 5 per cent. In some markets, notably in eastern Europe and Latin America, sales growth exceeded 10 per cent.

The take-off is all the more remarkable because it came against a background of strongly rising aluminium prices. In 2005, aluminium cost about $1,500 a tonne. That peaked at about $3,300 a tonne in 2006, but in September the metal was still trading at around $2,500 a tonne, a 66 per cent rise over two years.

Growth in emerging markets has been a big contributor, but there are two other stories, largely unsung, that explain the greater success of aluminium packaging.

One is innovation. Richard Moore, vice-president of strategic development at Netherlands-based food cans champion Impress, says that seven or eight years ago, 'make it fast, keep the costs down' was an industry mantra.

But industry forces, spurred by consolidators such as Impress, have become far more creative in their search for growth. "We have tried to turn that upside-down," says Mr Moore. "Today, the growth pockets are driven by innovation."

Bill Barker, group director of beverage cans at Rexam, says: "I think the industry recognised in 2000-2001 that it was at a point in its maturity where without rejuvenation it would not be very interesting going forward. So there has been a focus on new products, for example sleeker, taller, and bigger cans."

A supermarket shopper will probably recognize the innovations, but not their commercial significance. Peel-top cans in flatter shapes. Paint cans that are easily gripped, or finely illustrated. Air-fresheners that narrow, then bulge at the top, and slim cans for premium beers or aluminium bottles for energy drinks.

In a more competitive world, packaging has become more critical to product differentiation, and changing shapes can have extraordinary effects, inflating the sales of branded aerosols and air-fresheners.

The other, little-remarked growth vector is an increasing recognition of aluminium's virtues as a recyclable material. Consumers, by and large, prefer one-way packaging, but like to salve their consciences with the knowledge that it will be re-used.

Being light, strong, and light-proof, aluminium adds little to the weight or space of goods in transit, and protects them well, delivering environmental benefits. But in addition, it is easy to separate from household waste streams, before or after incineration or composting. Recycling rates are high. In the US, at least 52 per cent of beverage cans are recycled: in the Nordic countries 90 per cent and in Brazil, where collectors make money from spent cans, the rate reaches 96 per cent.

As the amount of energy used to collect old cans, smelt them, and turn them into new cans is a twentieth of that used to make a can originating as bauxite, that matters. And as recycling networks develop, the same metal could now theoretically be used to make a can six times a year.

Since beverage can makers consume around a tenth of the world's 35m tons of annual aluminium production, and foil makers another five per cent, that is potentially a huge saving, which explains why retailers, under pressure from packaging-aware consumers, often favour the metal.

Such trends helped drive the amount of aluminium consumed by European foil makers during the first half to 452,000 tonnes. Output of thin foil for flexible packaging rose 1.6 per cent, by weight, but production of thicker gauges, used in containers, rose almost 10 per cent.

The figures under-state the unit growth. Metal accounts for 40 per cent to 50 per cent of the cost of a tuna can. Much of the industry's research is devoted to reducing the amount of metal needed. So the amount of aluminium in a typical beverage can has fallen by 38 per cent since 1980.

European capacity is now very tight, and efficiency has been enhanced by investments. Though one plant in Belgium closed, Carcano Antonio, in Italy, added a new mill and Teich, in Austria, also added capacity. Exports from the European Union fell, as dollar weakness encouraged producers to focus on European markets.

Rexam, too, has been adding plants worldwide, spending £200m to £220m a year on extra capacity to meet the demand surge.

The growth comes despite higher prices, which are being progressively passed to customers. Impress raised prices on aluminium seafood cans 12 per cent in November last year, and is now negotiating new cost pass-through contacts with many customers. Rexam took a margin squeeze, but is confident that higher prices to its customers in 2008 will restore them.

Industry observers say the pace of growth has eased during 2007. But Stefan Glimm, executive director of the European Aluminium Foil Association, says total metal usage by members will probably exceed the 2006 figure.

Rexam's Mr Barker says that 2007 beverage can sales are expected to be "pretty strong", with continued double digit growth in Europe, South America and China, though North America could be flat, or see slow growth, after a 2 per cent up-tick in 2006.

Consumer belt-tightening could make the US, the world's biggest beverage can market, "pretty tough" during 2008, he says.

But for in the longer-term, Mr Barker foresees a bright future for the aluminium beverage can.

"The real strength of the aluminium can is its recyclability," he says. "It is recycled twice as much as any other package.

"As you look to the future and try to decouple waste generation from economic growth, aluminium will become even more attractive."

On fundamentals, then, aluminium's future as a packaging material looks brighter than you might have supposed.

Impress
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