Quenching North America's Thirst for Cans
For a long time, demand for food and beverage cans in North America was more or less flat. Since 2019, this trend seems to be reversing, with major can producers reporting accelerating demand growth and, at the time of writing, a very tight supply of beverage cans. This has stimulated beverage can imports to the US and investments in production capacity. The market has even attracted a foreign investor that just announced plans to build a greenfield plant. There is quite a bit of additional capacity coming online very shortly, which raises the question: is the increased demand of a structural nature and sufficiently high to allow for new market entrants, or will the market be shaken up?
Cans Are Back on the Shelf
For a long time, demand for food and beverage cans in North America was more or less flat to declining. Between 2015 and 2018, average annual shipments of cans were 125.4bn cans2, of which about 75% were beverage cans. Steady increases in demand for cans in some segments (e.g. beer and food) could not fully make up for the longer-term loss of cans in the soft drink segment resulting from the substitution of PET. In the past almost two years, this trend seems to be reversing. Major can producers are citing renewed interest in cans, driven by several different trends (see Table 1).
Table 1: Demand drivers for food and beverage metal cans in North America
Source: Rabobank 2020
Structurally Stronger Demand
For the first time in years, demand for food and beverage cans in North America started growing again as of Q1 2019. According to data from CMI, shipments of beverage cans increased by 3% during 20195, and all major players expect this trend to continue in the years to come. Ball Corporation (Ball), for example, noted during the presentation of its Q1 2020 figures that the size of the US beverage can market is now about 100bn cans per year vs. an average of 93.8bn cans between 2015 and 2018 (Rabobank, CMI). Ball expects annual growth rates to accelerate to between 4% and 6% for at least the next five to seven years. This trend can also be observed in demand data from GlobalData, which shows that 2019 was an inflection point and that demand is forecasted to grow slowly until at least 2024 (see Figure 1).6
Figure 1: Metal can and bottle demand in North America, 2009-2024f (bn units)
Source: Rabobank, GlobalData 2020
With the publication of their Q1 and Q2 2020 figures, leading beverage can producers Ball, Crown Holdings Corp. (Crown), and Ardagh Group (Ardagh) all reported they were in very short supply and sold out for the year as a result of persistently strong demand. Crown said in Q1 that the company expected shipments (of beverage cans) in North America to increase by 10% during 2020. Around the same time, Ardagh noted a 20% increase in sales of specialty cans in the region.
Whether the growth rates will be 4%, 6%, or something different remains to be seen, but Rabobank expects growth patterns to continue, due to the strong fundamental demand drivers.
Short-Term Gains: Cans and Corona
On top of what seems to be structurally higher demand for cans, coronavirus has further bloated market imbalances, in particular in the US. The leading US can producers reported sales increases up to double-digit numbers in North America during the first half of 2020. There is especially strong demand for beverage cans. This is partly due to pantry stocking and partly due to the (temporary) closure of most of the foodservice channels across the US. In combination with stay-at-home orders, consumers have shifted (social) drinking occasions to their homes. This has, for example, led to beer being canned instead of supplied in kegs. According to CMI, beverage can demand (volumes) grew an impressive 8.3% YOY in Q1 2020, which is a record growth rate, with non-alcoholic beverage cans leading over alcoholic beverage cans (+9.3% and 6.7%, respectively).
The tight market can even be felt by competing materials. Glass bottles have steadily lost market share to cans over the years, but O-I reported in its Q2 2020 earnings call that it has somewhat benefited from the US beverage can shortage that has driven additional demand for glass bottles. According to O-I, this trend is likely to extend through 2021. To meet the solid demand for beverage cans, Ball and Crown combined will import at least 2bn to 3bn beverage cans to the US in the next 12 to 18 months, sourcing cans from their networks in Latin America and as far away as Europe to fulfill demand. This will increase costs for some off-takers, due to the additional transportation costs of imported vs. locally produced cans.
Pantry stocking, eating more at home, and fears of frequent in-store grocery shopping have also supported strong growth in metal food can demand. Players like Silgan, Crown, and Trivium Packaging reported strong shipments of North American food cans during 1H 2020.
North American Can Revival – New Kid on the Block
The North American metal can industry has gone through some years of footprint optimization as a result of the previous flat market conditions. This has led to the closures of 15 plants in North America (one of which in Canada) between 2015 and 2019. However, due to the growing attractiveness of the market, key players started investing in capacity expansions across the region as of late 2018/early 2019. The lion’s share of new capacity is destined for beverage cans – only a small share of additional capacity will be used to produce food cans. Many plants are getting additional production lines, and there are four greenfield plants in the pipeline (see Table 2). The latter are all expected to be in operation during 2021.
The structural need for additional capacity seems to be exacerbated by the positive impact of Covid-19 on food and beverage cans alike. The attractive market has also lured a new foreign entrant, Polish-based CANPACK Group (CANPACK). In July 2020, CANPACK, which has 33 plants across Europe, North Africa, the Middle East, Asia, and Latin America, announced plans to build a greenfield plant that will have a capacity of 1bn cans, with room to expand to 3bn cans. Ardagh is the only other recent example of a foreign investor entering the North American can market through the company’s acquisitions of the Impress Group (2011) and the divested Ball-Rexam plants (2016) stemming from an anti-trust decision.
Table 2: Selected expansions in metal can/bottle capacity in the US and Canada, 2018-2021
|CANPACK||Olyphant, PA||US||Greenfield plant||2021 exp.|
|Ball||Glendale, AZ||US||Greenfield plant||2021 exp.|
|Ball||Northeast region||US||Greenfield plant||2021 exp.|
|Crown||Bowling Green, KY||US||Greenfield plant||2021 exp.|
|Ardagh||Various facilities, not disclosed||US||Additional capacity||2020-2021|
|Crown||Olympia, WA||US||Additional capacity||2020-2021|
|Crown||Nichols, Tioga County, NY||US||Additional capacity||2020|
|Ball||Fort Worth, TX||US||Additional capacity||2020|
|Crown||Batesville, MS||US||Additional capacity||2020|
|Silgan||Lancaster, SC||US||Additional capacity||2020|
|Crown||Weston, Ontario||Canada||Additional capacity||2020|
|Crown||Weston, Ontario||Canada||Additional capacity||2019|
|Ardagh||Valparaiso, IN||US||Additional capacity||2019|
|Silgan||Allentown-Breinigsville, PA||US||Greenfield plant||2018-2019|
|Ball||Goodyear (Phoenix), AZ||US||Greenfield plant||2018|
Source: Rabobank 2020
Enough Room in the Market?
The Key Question: Will There Be a Market Shake-Up?
Could CANPACK’s entrance into the US shake up the market? CANPACK will build a plant of significant size and has a reputation for shaking up markets it enters by being very price competitive.
Three Growth Scenarios
Rabobank estimates that the four greenfield plants, including CANPACK’s, will add at least 8.3bn units of beverage can capacity. This is equivalent to about 8% of current demand. The impact from the expansion of existing lines is harder to assess as there is limited public information available.
We present three scenarios for growth up to 2025, assuming that Ball’s 100bn beverage can estimate is accurate and that the entire market is operating at full capacity now (see Table 3). We use Ball’s 4% to 6% annual growth rate assumption for the next five years. In addition, we have added a 2% growth scenario, which is conservative in light of current market developments. Such a scenario would represent a more stabilizing situation in which the market share of cans vs. competing materials would grow at more modest rates. This could be due to demand shifts for beverages, channel shifts (e.g. drinking more on-premises again), or end users switching to competing materials. Rabobank considers the latter to be the most prominent potential risk if there is a prolonged can shortage. For example, a representative of the Brewers Association told CNN in July 2020: "We are seeing extended wait times for can orders and also some of the smaller players not having orders fulfilled.” Consequently, smaller off-takers might be prompted to switch back to glass to ensure they are able to bottle their products without interruptions. Another potential driver to switch away from cans would be if the cost competitiveness of cans vs. glass or PET declines substantially. This would be driven by higher aluminum prices – for example, as a result of changes in import tariffs. In early August 2020, the Trump administration announced the reimposition of a 10% import tariff on "non-alloyed unwrought aluminum” from Canada, and it is unclear if more actions will follow.
Table 3: Estimated incremental beverage can demand 2020-2025, three scenarios
Note: Assuming 2020 demand is 100bn cans and annual growth rates range between 2% (Rabobank), 4%, and 6% (Ball). The number of ‘CANPACK’ plant equivalents assumes that a plant is 1bn cans. The number is found by subtracting the estimated 8.3bn unit capacity that Rabobank expects to come online by 2021 from the total estimated incremental demand per scenario.
Source: Rabobank 2020
The Answer: Room for All to Grow
Let’s return to the key question: should existing players be worried about CANPACK’s entrance to the market? Probably not, because:
- The market has been tight all year and is expected to remain so. Substantial can imports are currently needed until production can be ramped up. This indicates room in the market for additional capacity.
- Can producers note that (most of) the current expansions are based on contracts.
- New capacity will be added in steps, due to timing and planning, which makes it easier for the market to absorb.
- CANPACK’s added capacity will equal 3% to 10% of the total incremental demand from 2020 to 2025. In addition, the company will operate from a single location. In a market that relies on scale and footprint, the latter might be a challenge. CANPACK, though, has successfully proven its concept in other markets.
The arrival of the new kid on the block will almost certainly bring some new dynamics to the market. Yet, summing up, it is unlikely that CANPACK would shake up the current market with high growth rates and a single plant. Major players have also recently renewed contracts with their large accounts. Even in the conservative scenario, the newly added capacity can be absorbed by the market. And if demand continues to grow in the coming five years, as Ball expects, there will be a lot of space in the market for all players to further grow capacities. In the most optimistic scenario, this opportunity would be the equivalent of up to 25 additional ‘CANPACK-size’ plants/production lines.
Regardless of this positive outlook, it would be wise to critically monitor demand developments in the coming 12 to 18 months before making further sizeable investment decisions. The seemingly structural growth in demand is still relatively new compared to years of stagnation. Yet it seems safe to assume that, no matter which of the three growth scenarios will materialize, demand will continue to grow. This means that some level of investments will continuously be needed.
1 For the purpose of this report, North America refers to the US and Canada.
2 According to Can Manufacturers Institute (CMI)
3 Ball Corporation. Annual Report, 2019
4 According to Nielsen data cited by CBS News
5 As cited in Crown’s 2019 Annual Report
6 Please note that GlobalData’s annual average demand growth is less than 1%, which is less than the increased shipment rates. The shipment data from CMI and consumption data from GlobalData do not match one-to-one, due to differences in reporting and methodology (e.g. reported numbers vs. estimated numbers, total domestic shipments vs. total domestic consumption, and so on). The data should thus be regarded as complementary, to get a sense of the direction of market trends.