How do the changes in supply-demand balance of aluminum can mate
2015/05/11According to the announcement of China’s National Bureau of Statistics on April 13, the country’s import of primary aluminum and semi-finished aluminum products was 1,210,000 tons, 43% up on a year-over-year basis, hitting a record high. City Group expects that it will reach 5,000,000 tons this year. (Considering last year’s 4,300,000 tons, this estimate may be a bit modest.) That amount of 5,000,000 tons accounts for as much as 18% of global aluminum consumption. And, China’s import in April announced on May 8 was 430,000 tons and the cumulative import during the four-month period from January to April of the year totaled 1,640,000 tons, up by 40% on a year-over-year basis.
China’s primary aluminum output during the initial two-month period of the year was 4,600,000 tons, which also hit a high record. Shipment of aluminum products increased to 6,900,000 tons, up by 21% from a year earlier.
Those are primary aluminum producers such as U.S. Alcoa and Russian Rusal that fear China’s availability most as the country’s increases in output and export of primary aluminum has become factors for strongly driving down the aluminum premium which is source of their profits.
In fact, aluminum premiums have continued to drop around the world. Now, they dropped below the $300/t range far from the $400/t range. Recent Korean premium dropped to $209/t. These declines will inevitably drive down Japanese premium further. We, IRUNIV expect so-called Japan premium will drop to the $100/t range before the end of the year.
The declines in the primary aluminum markets have had effects on aluminum alloy markets and its feedstock, aluminum scrap markets. A very notable example is the aluminum can material. The ratio of primary aluminum and scrap (used aluminum beverage cans) in manufacturing aluminum cans depends on the market move of primary aluminum.
The composition ratio of the feed materials has been determined based on the availability. If the price of primary aluminum is lower, the ratio of primary aluminum tends to increase and if the price of scrap is lower, the ratio of scrap is increased. Currently, there is some action exceeding previous recycling ideas. For example, Novelis is trying to get publicity for their high recycled content cans (Evercan) to improve its corporate value. However, can manufacturers and bottlers (beverage manufacturers) basically pursue their cost advantages. Some of the bottlers such as Coca-Cola also are giving predominant weight to increasing their recycling rate as part of improvements in corporate value.
As improvement of corporate value through the westernized manufacturer recycling is not yet common in Japan, cost advantage remains taking on top priority. Especially, the costs of can materials increased significantly and put pressure on manufacturers’ profits last year as the prices of aluminum premium and aluminum UBC remained at high level. Using the last year’s high cost and the risk in purchasing from limited domestic can material makers as “lessons”, Japanese can manufacturers and bottlers considered to use imported can materials. Some of can manufacturers actually signed up for several thousand tons of Korean aluminum can material (3004) getting approval from beverage manufacturers.
Although Korea and China are competing fiercely for the market share in the can material markets in South-East Asia, we consider that China whose cost of primary aluminum is overwhelmingly lower is more likely to get monopolistic share. The Chinese aluminum can materials will enter the impregnable Japanese market in a significant way. As a result, domestic can output will decrease in Japan, which we have already started to see and the price of aluminum can scrap will continue to drop.