Can makersthose who use tinplate manufactured by steel
producers worldwideare 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
sourcesservice center buyers of tin products, in
particularindicated 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
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)."