Chinese can growth propels expansion of Asian market

Jens Kastner, Ahmad Pathoni and Keith Nuthall explore the challenges and opportunities of the Chinese can industry in the landscape of the wider Asia Pacific metal packaging market, including Indonesia

Tags: Beverage Packaging, Food Packaging

The following article originally appeared in October 2023 issue of the China Market Report.

Since economic liberalisation and globalisation kick-started major economic growth in China since 1990, China’s food and beverage industry has expanded exponentially, boosting the country’s metal packaging industry. London-based market researcher, GlobalData, has forecast that China’s market will purchase more than one trillion units in 2024, with rigid metal packaging taking a 10.5 per cent volume share of this vast financial cake.

However, most recent data by China’s Ministry of Industry and Information Technology (MIIT) indicates that the sector has been suffering from a downturn: in the first half of 2022, the output of canned food manufacturing enterprises recorded a year-on-year decrease of 8.7 per cent, to 3.3 million tonnes, while the output of beverage manufacturing enterprises dropped by 1.5 per cent, to 90.6 million tonnes. China’s beer output was down 2 per cent year-on-year, while Chinese aluminium production dropped by 2.8 per cent in the same period.

Although this set of underwhelming data was collected before China’s government in the fourth quarter of 2022 abruptly ended its zero-Covid policy, economists believe that a much-anticipated strong rebound in consumer demand for metal can packed goods has not yet materialised, despite the easing of pandemic restrictions. 

“The metal can industry has been relying on consumer-facing industries like beverage, cosmetics and daily chemicals for growth, and now the consumer demand in China is depressed due to the income slowdown, which has dragged down the demand for metal cans,” said Dan Wang, chief economist at Hang Seng Bank (China).

Speaking to CanTech International, she added,“we don’t expect the situation to improve in the coming months, as the real income growth has been lower than the real GDP growth and the government is reluctant to issue new policies to boost consumption due to fiscal constraints and concerns over financial stability.”

A research note issued by the Beijing-based Qianzhan Industry Research Institute in July 2022 pointed out that since the 13th Five-Year Plan period (2016–2020), the state has paid increased attention to food safety issues, with higher standards and stricter requirements. This has consolidated China’s metal packaging sector, with small-scale beverage manufacturing enterprises failing to meet the new standards going out of business. Qianzhan said these dynamics have benefited local leading enterprises, such as Shenzhen-based ORG Packaging, Shenzhenbased Shengxing Packaging and Shanghai-based Baosteel Packaging, as well as international large-scale metal packaging companies, such as Ball Asia Pacific (a subsidiary of US-based Ball) and China operations of US-based major, Crown Holdings.

ORG said in its 2022 financial results that the company had been optimising production capacity allocation, reducing costs and boosting efficiency. The company serves many major FMCG brands, such as Red Bull, Want Want, Budweiser and Coca-Cola.

As well as food safety issues, the company said it had also been handling new regulatory requirements on environmental good practice, another hurdle that smaller packaging companies have struggled to clear. ORG’s financial report examined its development of circular economy policies, for example. Referring to China’s plastic restrictions that took effect in January 2021, prohibiting restaurants from providing singleuse plastic straws and stores in the major cities from providing plastic shopping bags, ORG pointed out that the tightened policy has been driving up the costs of using plastic and glass packaging, boosting demand for more recyclable metal can packaging.

Indeed, China’s recycling rate of cans has now topped 98 per cent, and government efforts continue to target a “complete can-to-can cycle,” said the report, with the company stressing this as “an important topic for the metal packaging industry to take the road of sustainable development.”

Regulatory requirements continue to be imposed on China’s metal packaging sector, for instance regarding food-contact materials. In April 2023, the China National Center for Food Safety Risk Assessment (CFSA) published a draft amendment to China’s GB 4806.1 National Food Safety Standard on the General Safety Requirements for Food-Contact Materials and Articles. This draft introduces a new concept of a “complete barrier” of additional material layers, preventing packaging substances from contaminating food. Although an exact release date is unknown, observers such as US- and China-based law firm, Keller and Heckman, point out that China’s regulatory stance is steadily becoming stricter by international standards.

China has not only established a list of permissible raw materials and restrictions for polymeric coatings in food contact materials, but also set basic requirements for the finished coating products, “which means that the overall supervision is more comprehensive and stricter,” said Aaron Cheng, food contact material business manager at Hangzhou, China-headquartered REACH24H Consulting Group.

Speaking to CanTech International, he added that a future revision of the coating standard may include stringent controls on substances such as bisphenol A diglycidyl ether (whose acronym is BADGE or DGEBA), bisphenol F diglycidyl ether (BFDGE) and other bisphenol A epoxy derivatives in epoxy resin coatings. These “would require a higher level of production requirements for coating manufacturers and can manufacturers – they will need to pay special attention to these changes,” he said.

That might give overseas companies an edge – at least in the short term. Pennsylvania, US-based PPG Industries has partnered with iconic Chinese herbal tea brand, JDB, since 2020 and has supplied some BPA-NI (no BPA intentionally added) coatings to food/beverage can manufacturers in China, who export to other countries.

PPG believes that interest in PPG Innovel and other BPA NI coatings will be expanded by the migration limit for BPA being lowered to the current EU level, as part of the China GB standards revision. “China tends to follow the regulatory trends led by Europe and the US. Regulators here are always very cautious and claim to target the most rigorous food safety standards,” said Kumar Padmanabhan, general manager, Asia Pacific, PPG Packaging Coatings. Speaking to CanTech International, he added, “Chinese food contact material manufacturers are, therefore, sometimes being driven by end users and regulators outside of China.”

Sales opportunities are perceived also by German exporters of food packing machines: data by Germany’s Mechanical Engineering Industry Association (Verband Deutscher Maschinen- und Anlagenbau - VDMA) show that German exports to China reached EUR€292 million in 2022, up significantly from pre-Covid year 2019’s €245 million.

“Although it is impossible for us to pin down the exact cause for the strong growth rate, we believe that this is likely due to China’s efforts to enhance food safety and China’s rising demand for automatisation of processing and packaging processes,” a VDMA spokeswoman told CanTech International.

China’s huge can market also offers opportunities for exporters from neighbouring countries in Southeast Asia, the most populous (at 273 million people) being Indonesia.

The metal packaging industry in Indonesia has been growing at a compound annual growth rate (CAGR) of 3.6 per cent since 2018, and its turnover is expected to reach US$1.2 billion by 2028, according to India-based market research company, Mordor Intelligence.

Emil Satria, director of food, marine products and fisheries at Indonesia’s ministry of industry, said the canned food industry had grown in recent years despite the pandemic.

Indonesia’s food and beverage industry sales in Q1 2023 grew 5.33 per cent year-on-year, up from 2.45 per cent in Q1 2021, he said, citing data from Statistics Indonesia (Badan Pusat Statistik - BPS). And one reason for this, he said, was economic growth in China: “The developments in China are an opportunity for Indonesia to attract investment by preparing both investment facilities and infrastructure support,” he said. “Indonesia has the potential to become a centre for the can industry, with a growing processed food industry,” he added.

The Mordor Intelligence report identified some of the major players in the Indonesian can industry that could take advantage of Chinese purchases, such as PT Pelangi Indah Canindo Tbk, Sonoco Products Company (Sonoco Indonesia), PT Indonesia Multi Colour Printing, Crown Holdings Inc and PT United Can Company Ltd.

It stressed that the Indonesian sector highlights some recent developments in the industry, such as Nestlé’s construction of a beverage can plant in the Central Java district of Batang, in May 2021, and industrial packaging products manufacturer, PT Rheem Indonesia’s expansion into plastic drums and jerry cans manufacturing in December 2022.

Big players who export empty can packaging include Indonesia- and Japan-based UCC Coffee Indonesia, followed by Jakarta-based Ancol Terang Metal Printing and Cometa Can, said Ariana Susanti, business development director at the Indonesian Packaging Federation (IPF).

However, these major companies only “serve orders in high quantity,” she said, which – while they can cope with big export orders – does actually leave medium-sized Indonesian companies unable to use their services. Ironically, as a result, “many users from Indonesia import from China because China can serve custom orders in small quantities, so that there can be more variety in design,” she said.

In the meantime, the Indonesian metal packaging industry is facing challenges, with demand for some products falling, such as cans for shoe polish, glass bottle caps and syrup, but increasing for others, such as canned sardines.

Another problem is limited local raw materials and import quota restrictions with tinplate producers in Indonesia: state-owned PT Pelat Timah Nusantara Tbk (Latinusa) has a production capacity of 150,000 tonnes per year, while the domestic industry’s needs to reach 250,000 tonnes per year, explained Ariana.

“Therefore, on average, the domestic industry has to import tinplate [of] around 100,000 tonnes a year,” she added.

The Mordor report also noted some challenges for the metal packaging industry in Indonesia, such as the competition from low-cost alternatives made of paper and plastic, and the Russia-Ukraine war, which has adversely impacted supply and demand dynamics regarding a wide range of materials and products.

Ultimately, these shifts within the major AsiaPacific can manufacturing and filling market show that China, Indonesia and other regional countries will not only grow the sector but will integrate their industries at the same time. According to the India, UK and US-based market research firm, IMARC Group, the Asia-Pacific aluminium cans market, for instance, was worth US$10.8 billion in 2022, projecting it will be $14.9 billion by 2028, with a compound annual growth rate (CAGR) of 5.7 per cent from 2023-2028.

Another Mordor Intelligence report offers similar optimism. It predicts the Asia-Pacific metal cans market will grow at a CAGR of 4.4 per cent from 2021-2026.

“The excellent preservative properties and structural integrity of the metal cans, offering higher shelf life, have resulted in the high usage of metal cans in the food packaging industry across Asia. Packaged and convenience food has become a staple diet for many consumers, owing to their hectic lifestyles and work schedules,” noted Mordor Intelligence.

It stressed how “multiple large steel projects located in Southeast Asia were underpinned by Chinese investment” in recent years.

US-based Grand View Research projects similar long-term growth, with a report estimating the value of the Asia Pacific metal cans market at US$13.4 billion in 2021, here expanding at a CAGR of 6.6 per cent from 2022 to 2030. It said: “The environmental benefits of metal cans and their easy and quick recycling, along with increasing demand for the canned products, are anticipated to positively affect growth...”

It added that increasing government restrictions in the region on plastic packaging “for the packing of vegetables, soups, noodles, meat, etc, create an opportunity for growth of the market” in metal packaging.

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