The People’s Republic of Beverage Cans: Ball Packaging plans to shift US lines to China

Picture Copyright: Ian Holton

Ball Packaging says it is selling every beverage can it makes for the Chinese market, with huge opportunities in sectors such as beer, and wants to relocate equipment there from ‘mature markets’ such as the US.

Discussing the firm’s full-year 2011 results with analysts last Thursday – net profits of $444m on sales of $8.6bn – Ball said it also planned to plough the bulk of its $400m capital expenditure budget for 2012 into China.

Raymond Seabrook, executive vice president and COO for Global Packaging Operations, said: “China continues to grow. We’re basically sold out – every can we make, we can sell.”

Predicting high teen percentage growth for Chinese beverage cans, despite market growth of 20-25%, he added: “We’re kind of oversold a little bit in China in 2012, it won’t be up 30% because we haven’t increased capacity 30%.”

European price weakness

Nonetheless, answering a question from Philip Ng, Jefferies & Company, about price weakness in Europe, and whether Ball was predicting “leakage” in other major markets, Seabrook said that China (where Ball is the leading player with a reported 31% share) was not an easy place to do business.

He said: “We have good competitors that play hard, and so do we. But I would say Europe is where we’re seeing most of the pressure. A little bit in China, but I would say primarily Europe.”

Despite strong fundamentals within the Chinese market, Ball CEO and president John Hayes said that Ball didn’t think the 30% growth seen over the past couple of years would persist over the next 10, “but certainly [would] in the near term”.

He added: “We’ve talked about can penetration in the beer market really being mid-single digits, the 5-6% range as we sit here today, verses 50% in developed markets.

“When you think about China as the world’s biggest beer market, and only 5% of that is packaged in cans. You have all the people moving from rural areas to urban area.”

Hayes added: “It sets us up very nicely over the long term, and that’s why a lot of our capital dollars are going into that.

Equipment relocation

Asked by Mark Wilde from Deutsche Bank about Ball’s Q3 mention that it was thinking of moving some lines in the US (where Ball has excess capacity) to China, Seabrook said: “Yes, we’re actively looking at that. I said we had a couple of lines right now that we’ve got out of commission.

“So our preference would be to relocate the equipment from mature to emerging markets.”

Discussing development targets worldwide, Hayes said Ball new plant builds were presaged by long-term customer agreements, to ensure certainty regarding volume and pricing.

In a tough European market with only 2% beverage can volume growth in 2011, Hayes pointed to high unemployment and the risk of double-dip recessions, while US beverage can volumes fell 2%.

Hayes also predicted continued good growth in Brazil due to a growing middle class, despite an economic slowdown. “We still think there are good prospects relative to the consumer need for our product.”