‘Recession-proof’ aluminium packaging sector remains resilient despite challenging market conditions

The aluminium packaging sector has continued to report robust demand and financial results despite the weaker market conditions that have hobbled some other aluminium end-users

Despite continuing geopolitical, pandemic and macroeconomic headwinds, the packaging sector has remained profitable, with some participants describing the sector as “recession-proof.” The outlook is uncertain, however, amid inflationary pressures.

“Packaging is usually a pretty resilient market. If you remember from Covid and earlier periods, you see increases in can production when people are facing challenging times,” a European mill source said.

Aluminium packaging producer Constellium recently reported adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) of €365 million ($371.52 million) for its first half, up by 25% year on year.

The company described packaging as a strong market in North America and in Europe, where domestic supply remained tight — especially with a focus on sustainability driving increased demand for aluminium cans.

The company reported shipments of 142,000 tonnes, up by 2% compared to the first half of 2021 on higher shipments of other extruded products, partially offset by lower shipments of automotive extruded products.

“Both [packaging & automotive rolled products] and [automotive structures & industry] reported record adjusted EBITDA as continued strength in packaging and industry demand more than offset continued weakness in automotive caused by the semiconductor shortage and other supply chain challenges,” Constellium chief executive Jean-Marc Germain said.

American aluminium producer Novelis reported “stable, strong demand for recession-resistant beverage can sheet” in its near-term end market outlook in its most recent results. It also reported high levels of pent-up vehicle demand and low dealer inventories following low automotive build rates affected by Covid lockdowns and semi-conductor chip shortages.

In the first quarter, Novelis had record shipments in North America on strong can demand and improved automotive shipments with easing semiconductor supply, although inflationary pressures partly offset a favorable pricing environment and metal benefits.

European shipments improved for aerospace and strong can, but automotive and speciality shipments have been affected by semiconductor shortages. Energy cost increases at German plants due to the Russia-Ukraine conflict have also added inflationary pressure.

Consumer demand for packaging such as beverage cans is booming, with brewer Heineken recently reporting net profit of €1.265 billion, up by 22.3% year on year, with the higher profit linked to post-Covid volume recovery across all regions and inflation-led pricing.

The company said that the recent softening in some commodities had been offset by unprecedented price levels and the availability risk of natural gas, notably in its largest market Europe.

The company has been covering input cost inflation on a euro-for-euro basis, with productivity savings also offsetting significant inflationary pressures. It expects significant inflationary pressures on cost base and ongoing investment in the business to continue and to affect the second half of 2022 and into 2023.

“We benefitted from the recovery in Asia Pacific and the on-trade in Europe as consumers returned to the bars, with demand resilient until now despite mounting inflationary pressures on consumers’ disposable income,” chief executive Dolf van den Brink said.

“Aluminium cans are somewhat recession-proof, if you think about what’s going to happen — people’s budgets tighten and they stay home for a beer instead of going to the pub. People still buy cans and aluminium packaging is huge right now; you can even get cans of water these days,” a market participant said.

Elsewhere, the aluminium industry has been recovering from the lasting effect of the Covid-19 pandemic, with some sectors such as automotive continuing to grapple with shortages of semi-conductors, restricting production volumes.

European car sales have fallen monthly for the past 12 months, according to European Automotive Manufacturers Association (Acea) statistics, with the figures reaching record lows earlier this year on semi-conductor chip shortages.

Some parts of the aluminium supply chain have reduced capacity due to soaring energy costs caused by the continuing war in Ukraine, which pushed aluminium premiums to record highs earlier this year.

“There is still some good demand in places, but it is mostly cans, the beer makers are doing well at the moment and so are the other packaging sectors,” an aluminium trader said. “The automotive and constructions sectors are tough but the outlook for demand is not awful everywhere.”

“Automotive is stable on a lower level, the chip shortage being relieved, and auto is producing more again. I can’t see increases but I don’t see any decreases,” a second aluminium mill source said.

Fastmarkets’ price assessment of aluminium pressure diecasting ingot DIN226/A380, delivered Europe, which is widely used in the automotive sector, has ticked down to €2,150-2,250 per tonne on August 5 from its peak of €2,900-3,050 per tonne on March 11.

Automotive manufacturers, however, have plentiful inventories and won’t need to step into the market for some time, sources said.

“For us, it is difficult because we have already stocked up the materials we need for our production. Perhaps we’ll need to go to market later, but no one is producing the cars they were a few years ago and it depends on how bad things get,” an automotive source said.

Fastmarkets’ assessment of aluminium 6063 extrusion billet premium, ddp North Germany (Ruhr region) has also slipped from record highs to $1,170-1,250 per tonne on August 5, down from a peak of $1,500-1,600 per tonne on March 11.

Imogen Dudman in London contributed to this report.

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