Can makers—those who use tinplate manufactured by steel producers worldwide—are fighting a couple of tough battles these days but are having success on several fronts even though the odds seem to be stacked against them.
Among their challenges is pricing power, which rests in the hands of steel producers. ArcelorMittal USA, Chicago, and U.S. Steel Corp., Pittsburgh, are the only two true U.S. manufacturers of the product, while Ohio Coatings Co., Yorkville, Ohio, and USS-Posco Industries Inc., Pittsburg, Calif., apply tin coating to substrate material, so can makers have limited options from where to source material.
Another battle is the freshness challenge. Try, for example, promoting the message that canned food is better than fresh food. That challenge is being taken up by the Can Manufacturers' Institute (CMI), Washington, which has a formidable opponent in none other than the First Lady. "The big battle for the can makers is freshness," CMI president Robert Budway said. "There is a misperception out there that fresh food is better than canned food. That perception is bolstered when you have someone like Michelle Obama with her garden at the White House. But that (fresh food is better than canned food) is not always the case."
The reasons are relatively simple, he said. Can makers usually have operations near the fields where foods such as tomatoes or corn are harvested. The product goes virtually right from the field to the can. "So in the case of corn, for example, it's cut in the field, packed to lock in the freshness and shipped to the store," Budway said. "When you buy an ear of corn at the store, you don't know how long it was sitting on the dock or in the truck before it got there. The ability to lock in freshness quickly is a key selling point for us."
A recent study by Silgan Containers Corp., Woodland Hills, Calif., one of the largest manufacturers of steel and aluminum cans in the country, showed that metal cans were ranked No. 1 by 81 percent of consumers specifying a material preference, compared with 9 percent for plastic, 6 percent for glass, 1 percent for cartons and 1 percent for pouches. The findings also showed that shapes can potentially increase market share, even with a price premium as high as 16 percent, communicating instantly by providing upscale visual clues coupled with memorable and recognizable branding.
One challenge container manufacturers apparently won't have to face in 2010 is a price increase. Several market sources—service center buyers of tin products, in particular—indicated that it appears contract prices will remain basically flat compared with 2009.
Contract negotiations on tin products usually take place between steel mills and their customers in the fall for the following year. Those negotiations are influenced largely by the food pack, a measurement of the amount of food that will be packed in cans in a given year. The tinplate produced by steelmakers is used mostly for food and aerosol cans, as well as in industrial applications such as oil filters. Beverage cans are made mostly from aluminum.
"Tinplate is sort of immune to recession," a Midwest service center source said. "The consumption of food in cans is not really offset by recession. People still eat."
Silgan, for example, posted third-quarter sales from its metal food containers business of $716.5 million, up 16.1 percent from the same period a year earlier.
Thus, tinplate pricing generally will hold up better in 2010 than prices for its hot-rolled or cold-rolled counterparts. Hot-rolled prices peaked at around $1,100 per ton in summer 2008, which hurt tin mill products being sold under contract at considerably less. "They couldn't even make their margins on tinplate then," the second Midwest service center source said.
But the economic downturn of late 2008 sent steel prices plummeting to the point where market prices for hot rolled went below $400 per ton in spring 2009 before rebounding to around $520 in November, when tinplate was selling for about $900 per ton after customers agreed in 2008 to varying price increases based on disparate contract prices from the previous year. Those who paid small increases in 2007 got hit with larger increases in 2008, while those who paid more in 2007 faced smaller increases in 2008.
"The mills don't do those blanket price increases any more," the service center source said. "But they need to have at least a $300 margin on tinplate (vs. hot-rolled product) to make any money. They've got to be between $300 and $500 higher on tinplate, and I think that's where they are now. It looks like that's where they are going to be (in 2010)."