Rexam – a tale of two markets

Two of Rexam’s most recent investments have come in Brazil and India, which are both attractive markets for the company, but for very different reasons. Metal Bulletin takes a look at the regions that Rexam will be focusing on in the coming years.

Two of global packaging company Rexam’s most recent investments have come in Brazil and India, which are both attractive markets for the company, but for very different reasons. Metal Bulletin takes a look at the regions that Rexam will be focusing on in the coming years.

Brazil
Brazil is the world leader of aluminium can recycling, with 98.3% of the 21-23 billion aluminium cans filled in Brazil in 2011 making their way back into the production chain, according to Brazilian aluminium association Abal.

On average, each citizen uses about 80 beverage cans per year in Brazil, compared with 78 cans per year in Western Europe and 32 cans per year in China. The USA, at 350 cans per year, is the runaway leader in this category.

Such affinity for the beverage can has attracted a lot of investment. Novelis operates five can-collecting centres in Brazil, and Rexam began production at its new can plant in Brazil earlier this month, with a capacity of 800 million units per year.

The success story will only improve with both the football world cup and the summer Olympic Games coming to Brazil in 2014 and 2016, respectively. While these events are not likely to directly boost the number of cans consumed in the country either substantially or sustainably, they will improve local infrastructure and hopefully provide a boost to the local economy.

“It underpins the growth rate there,” Rexam ceo Graham Chipchase said. “The level of infrastructure spend will grow the GDP per capita, which will increase the size of the middle class.”

And that is what will boost can usage rates, both substantially and sustainably.

India
If Brazil is a shining beacon of the beverage can industry, India is barely on the radar. Its GDP per capita is about $3,700, compared with $12,000 in Brazil. It fills about 800 million cans per year, which is less than one per capita. Recycling rates are practically non-existent.

Nevertheless, Rexam is ready to invest in capacity ahead of demand, and believes India will become a huge market for aluminium cans.

Rexam first entered the Indian market with a joint venture with Hindustan Tin Works in 2007, and added a new aluminium can line after a £30 million investment last year. But India is a very different proposition to any other new market that Rexam has tackled.

“India will not follow the pattern of any other emerging market,” Chipchase said. “It’s about providing what they really need, not what we are accustomed to.”

That means less standard can sizes and more specialty cans. It means smaller cans for cheaper units, and more, smaller production facilities to cope with the country’s poor infrastructure. But as with any market, Rexam expects real penetration of the Indian market to come with higher GDP ratios.

“GDP per capita in India is very low. For a decent can market you need about $10,000 per capita,” Chipchase said.

Though volumes in India will not threaten those of Brazil for decades to come, Chipchase sees a lot of structural similarities that make him think an investment ahead of demand will reap significant rewards.

“If you go back to the late 1990s and early 2000s, the Brazilian can market was not far away from the Indian can market today,” he said.

With the latest investments, Rexam is putting money on India going like Brazil.

Jethro Wookey
jwookey@metalbulletin.com
Twitter: @jethrowookey_mb

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