Capacity constraints could push up aluminium canstock prices

Strong demand for beverage cans – particularly in North America – boosted the results for US-based aluminium producer Novelis in the first quarter of its 2020 financial year.

However, as the company begins the next round of price negotiations with canmakers, it indicated that capacity constraints it is experiencing globally – especially in North America – were likely to drive up the price of aluminium canstock.

“We are expanding capacity in Brazil by 100,000 tonnes to support customer can growth,” reported Novelis chief executive Steve Fisher in a conference call. “We will continue to find other ways to debottleneck assets … and ultimately enter into whatever we need to do – JVs or alliances – in order to continue to support beverage can growth. We do see this as mid- to long-term a strong market.

“A few years back, we saw the bottoming out of prices for beverage cans and right now we are in a more favourable position as we go into negotiating with our customers. I specifically say that for North America and Europe; in Asia overcapacity remains a challenge.”

He reported that Novelis was currently having active discussions on price with a number of canmakers.

Novelis reported pre-ebitda profit in the three months to the end of June of US$372m, up 11 per cent compared with the same period last year. Adjusted ebitda for the 12 months was $1.4 billion, representing a compound annual growth rate of 13 per cent over the past four years.

Overall, sales fell by six per cent to $2.93bn for the quarter compared with the same period last year. This was hit by lower average aluminium prices across its portfolio – which includes aluminium for automotive and special projects as well as cans – and local market premiums. Sales figures were partially offset by higher total shipments and more favourable product price and mix, the company added.

Fisher also said a packaging mix shift from other materials to aluminium as consumers sought more sustainable aluminium packaging had also helped its performance. This was boosted by the introduction of new types of beverage, such as energy drinks, sparkling water and craft beer in cans, he added.

There was strong demand for aluminium canstock from emerging regions in Brazil and Asia, where the market is improving, said chief financial officer Devinder Ahuja.

Ahuja reported good progress with the $175m capacity expansion at Novelis’ Pindamonhangaba plant, located between São Paulo and Rio de Janeiro in Brazil. This includes the construction of 100,000t of additional rolling capacity for canstock and 60,000t of additional recycling capacity.

This is on schedule to come on stream during the 2021 financial year, said Ahuja. Once completed, the facility will have capacity to produce 680,000t of aluminium sheet a year and 450,000t of recycled aluminium a year. Currently, Novelis is using more than 60 per cent recycled content globally, reported Ahuja. “With the new recycling capacity coming in Brazil, the recycled content will go up.”

Fisher predicted that demand for aluminium canstock would continue to grow as more fillers moved away from plastics and other materials to packaging beverages in aluminium cans.

“We are seeing good growth rates in the US. CMI [Can Manufacturers Institute] in quarter two [of 2019] in the US and Canada put beverage cans up 2.4 per cent year-on-year, which is three straight quarters of positive growth,” he said.