US demand for beverage can sheet, and by extension used beverage can scrap (UBC), could be at an inflection point in the first quarter of 2023 in response to changing consumer behavior.
UBC spot spreads will be influenced by whether consumers continue to drink outside the home in a show of pent-up, post-lockdown demand or are driven back home by inflation and an economic slowdown.
"Can sheet looks like it's going to be down because more people are going to concerts and kegging is coming back," said one US mill, describing the broad post-lockdown trend of increased off-premise drinking, which favors glass and plastic over aluminum cans.
A second mill said it will do very little contractual UBC business for 2023, which typically indicates either confidence in flush scrap supply or concerns that softer order books for items like beverage can sheet could leave consumers overly long raw material.
But a scrap broker said he increased annual contract sales volumes to all US mills he serves. The contract-heavy mix might not be attributable to great overall scrap consumption though and could potentially be offset by less spot buying if consumer beverage demand slows down, he said.
Market forecasts on spot UBC buying spreads for early next year were mixed, with no strong consensus. In the second week of December, US UBC buyers paid around 63.5pc of the Argus Midwest transaction price for primary aluminum.
Historically, UBC spreads tend to tighten or represent a price closer to the value of new P1020 aluminum in the winter months, with average Argus spreads tightening between December and January three times over the past five years. Reduced scrap flows and cold weather transportation disruptions are typically the drivers. Sometimes tightening over December to January stalls because of stocking up earlier in the fourth quarter.
Brewers, mills and fillers have received a meaningful boost since early 2020 as lockdowns kept people home, but over the past year, as consumers habits moved back toward pre-Covid-19 norms, the packaging industry is debating what will happen next. If recent hikes in interest rates do stimulate a recession as have some expected, aluminum can could receive another shot in the arm just as its Covid-19-related favorability is beginning to wane.
"It is true that when we've entered recessions historically, the can has been promoted because there has been a shift from [on premises drinking] into more off premises. And we haven't seen that yet," Ball chief executive Dan Fisher said on the company's third quarter call.
But he added later that some recent data suggests such a shift could be imminent, which could cushion can consumption.
In August, the company announced it would be closing two of its old canning plants and delaying the construction of a new one in North Las Vegas, Nevada.
Other companies in packaging have warned that while fourth quarter demand for canned beverages could suffer, mid-term and certainly long-term demand was solid.
Packager Crown Cork and Seals cut its fourth quarter guidance in its October earnings, citing inflationary pressures and lower demand, spurred by lower consumer spending. But similarly to Novelis, the company insists the pressure will be short term — not giving an exact timeline for it to abate, but leaving its 2023 outlook unchanged.
"Primarily in the Americas, there's been some normalization of [post-Covid-19] consumption of beverage cans that has caused a number of can makers to pull back and start to de-stock," Novelis president and chief executive Steve Fisher said on an earnings call in November. "This is a short term issue in the marketplace that needs to work itself through over this past quarter and this next quarter."
