INTERVIEW: Brazil's aluminum can industry targets 5% growth for 2024, says Abralatas

The first half of the year has been a cause for celebration among aluminum can manufacturers in Brazil, as the extended hot season and favorable macroeconomic conditions have driven beverage consumption and can sales. This trend is anticipated to lead sales to a 5% growth by year-end, according to Cátilo Cândido, president of the Brazilian Association of Aluminum Can Manufacturers (Abralatas).

The sector growth in 2023 was 1.65% on year. According to Candido, current production rate is 32.3 billion cans units/year, while per capita consumption stands at 165 12-can packages per year. "Aluminum can sales is a combination of scale, temperature and economy," said Cândido in an interview to S&P Global Commodity Insights.

He further highlighted that the Brazilian aluminum can industry closely mirrors the dynamics of the domestic economy, with growth figures closely aligned with Gross Domestic Product (GDP).

"It's a market deeply connected to beer sales, so it relies heavily on economic conditions and temperature. Additionally, we require large-scale production—around 2,500 cans per minute," he explained.

Cândido added that stable prices for domestic primary aluminum in recent months have allowed the sector to enter 2024 with "normalized" inventories.

The industry has also experienced a more stable market following the distortions caused by the coronavirus pandemic. Cândido pointed out that can sales surged during the pandemic, complicating inventory management for the sector. Furthermore, the summer of 2023 was colder than anticipated, which impacted sales. "The pandemic years saw a distortion in sales; we exceeded expectations as bars and restaurants were closed, leading consumers to drink more at home. Home consumption typically involves aluminum cans."

Consumption of aluminum cans per capita stands at 165 packages annually.

In 2024 Brazil's primary aluminum premiums reached their lowest level since June 2020.

Platts assessed the DDP Southeast primary aluminum low-ICMS premium on Feb. 16, 2024, at $250/mt, plus London Metal Exchange cash, duty-paid, delivered in Southeast Brazil, excluding value-added tax (PIS/COFINS and IPI). This was consistent with the price level of June 12, 2023. After that, DDP Southeast primary aluminum low-ICMS premium steadily increased, reaching $295/mt on the same basis by Aug. 16.

Over the past 10 years, the sector's sales have grown 53%, with an average growth of around 6% per year. "It's a success story that encompasses both pandemic and non-pandemic years," stated Cândido, who added that the goal is to maintain this growth pace over the next decade through stronger relationships with end-users.

Cândido emphasized that the country has sufficient production capacity to support further growth in the sector, estimating the ability to produce 40 billion cans per year compared with an expected production of approximately 32 billion cans this year.

The next step for the sector involves encouraging individual consumption, moving away from the Brazilian cultural norm of sharing drinks with family and friends, by expanding the product portfolio to include new non-alcoholic flavored beverages, canned water, and even canned wine aimed at female consumers.

Supply chain opportunities and risks

While the sector aims to broaden its offerings to attract a wider audience, it is also committed to addressing climate change concerns, appealing to a public increasingly focused on environmental sustainability. Cândido emphasized that aluminum cans serve as a global benchmark for recycling.

"We have recycled over 95% of the cans used in Brazil over the past 15 years. When compared with other economies, we rank first in the world," he said.

"We are comparable to markets like Germany and Japan; however, they operate on smaller volumes or experience more fluctuations, as seen in Japan," he added.

Cândido stressed that the Brazilian recycling chain is based on a collective effort, involving investment from companies alongside a network of individual collectors and cooperatives. Together, they sustain a business valued at Real 6 billion per year, encompassing not only aluminum but also other recycled materials.

Companies affiliated to Abralatas are committed to purchasing used beverage cans as part of an agreement with the Brazilian government. They are discussing the procurement of 312,000 mt of post-consumption scrap, which is processed by companies like Novelis into aluminum coils, blended with a small percentage of primary aluminum, typically between 10% and 15%.

This achievement reflects that the proportion of primary aluminum in their coils is among the lowest in the industry, and the recycling cycle for these coils is approximately 60 days.

However, the executive pointed to one potential downside to this impressive dynamic, which generates approximately Real 18 billion in revenue: "Brazilian aluminum can producers depend on a single company for their aluminum coil supply", he said, adding that this reliance, which is also seen in other countries, creates a risk due to market concentration, which can threaten production continuity and growth.

"Just think about it: if there's a one-hour power outage or a machine breaks down, we could lose thousands of products in a very short time," he cautioned.