With the massive import tariffs and supply constraints driving the prices of aluminum raw materials to sky-rocket, companies may be forced to make changes in packaging design, material selection and procurement strategies.
Aluminum prices are high, and packaging costs are under pressure.
By early November, the premium for aluminum in the U.S. Midwest, or the extra cost above the benchmark LME price, had surged to a record $88.10 a pound (about $1,942 a ton).
If we add the benchmark price of about $2,850 per ton, the total cost of arrival for US buyers has approached $4,792 per ton.
The key driver of this upleg has been the US government's decision in June to more than double the import tariff on aluminum to 50 percent in an effort to boost domestic production.
For packaging companies, particularly those using aluminum cans, tin-foil trays and other metal packaging formats, the impact shows up in three ways: higher raw material costs, more uncertain purchasing sources and greater difficulty in passing those costs on to downstream customers.
Industry sources have indicated that if tariffs remain high, aluminum users may consider switching to alternative materials (such as plastic or paper-based packaging).
Supply chain dynamics are changing, and procurement risks are increasing.
In addition to the obvious price increases, the packaging industry also has to deal with a shift in the supply chain landscape. Globally, aluminum production outside of China has fallen by over 11 million tons per year, while China’s net exports of refined aluminum have also decreased by about 9 million tons per year.
The decline in aluminum supply has led to a tightening market environment for downstream aluminum users, including packaging processors.
In the EU, downstream aluminum users are warning that high tariffs on primary aluminum and reliance on imports are putting huge cost pressures on small and medium-sized enterprises in the supply chain.
For packaging manufacturers, this means that cost fluctuations and supply risks are no longer confined to their direct raw materials, but are increasingly influenced by global trade and macro developments in policies.
Impact of packaging form and material substitution
The pressure of aluminum costs is prompting packaging companies to assess alternative packaging forms and materials. Some beverage packaging manufacturers have begun to shift to PET or other plastic bottles as a pragmatic response to the rising cost of aluminum cans.
As a result, unless aluminum costs decline or upstream production efficiency improves, the "aluminum packaging" value chain may gradually lose market share.
For the overall packaging industry, the current situation signals the urgent need for companies to take the following measures:
Piecely assess exposure to aluminum price fluctuations in the primary and secondary markets;
Explore a dual-material strategy combining metal with plastic/paper to mitigate risks;
In view of the fact that recycled aluminum has both cost and environmental advantages, closer cooperation should be established with aluminum recyclers and secondary material suppliers.
Finally, the aluminum premium surge and global supply tightening have brought severe cost and procurement challenges to businesses that rely on metal packaging formats.
In this period of industry transition, material strategy and supply chain flexibility will be key to remaining competitive in an era of increasing commodity price uncertainty.
