Ukraine and Russia can sector disruption

With the continuing Russian invasion of Ukraine, this week’s blog features an article about the disruption that has been caused to the can sector in both countries. It was written earlier this week, exclusively for CanTech International, by Monika Hanley, based in Riga, Latvia.

The Russian government’s destructive invasion of Ukraine has harmed operations of the metal packaging sector and their aluminium and steel suppliers in both Ukraine and Russia, having an international impact on the can manufacturing and filling industry.

New records are being set for the international price of aluminium, up 28% in 2022, reaching US$3,849 per tonne on 4 March, then settling back to US$3,398, approximately level with the price following a spike that occurred on 24 February, right after the invasion began. Also, existing initiatives, notably involving the Russian metal packaging industry and suppliers working towards aluminium decarbonisation, have been disrupted.

The Moscow-based En+ Group International PJSC, a major producer of low-carbon aluminium and the controlling shareholder of Russian aluminium production major UC Rusal, saw its British Conservative peer Lord (Greg) Barker stepping down as EN+ chairman on 7 March.

Moreover, as the invasion of Ukraine continues, En+ may struggle to continue its past internationally cooperative and sustainable path. Anheuser-Busch InBev, makers of Budweiser and Stella Artois beer, had been collaborating with En+ to make low-carbon aluminium cans until the completion of a pilot programme in December 2021. There is now no word on if their partnership will continue. The company has also shut down its three plants in the Ukrainian cities of Chernihiv, where it brews Chernigivske beer; Kharkiv, also making Chernigivske; and Mykolaiv, where it brews Taller beer.

Uday Patel, principal analyst at Wood Mackenzie, and senior aluminium sector researcher, said: “Russia is such an important part of the green supply chain in aluminium, and I don’t see a way out of that conundrum.” Should the conflict drag on, Patel warned: “There is the potential for a reversal of trying to lower carbon in our consumer products.”

Of particular concern was the fact that the Rusal-owned Mykolaiv refinery for producing aluminium feedstock alumina for En+, near the port of Mykolaiv, southern Ukraine, was damaged by Russian military in late February – the port has been heavily shelled by Russian artillery.

That is a major problem: “All of the alumina produced by Nikolaev [the Russian name for Mykolaiv] is transported to Rusal’s smelters in Russia. In metal equivalent terms the Nikolaev refinery supports 75kt/month or 900kt/a of output, representing 23% of Rusal’s primary aluminium production,” said a note from Ami Shivkar, of Wood Mackenzie’s aluminium team.

UC Rusal, the top producer of aluminium after the China Hongqiao Group, stopped shipments from Ukraine on 28 February.

It is also struggling with sanctions. Rusal was founded by Oleg Deripaska, sanctioned by the UK on 10 March, (his UK-based assets have been frozen and he is subject to a travel ban).

On 20 March, the Australian government’s decision to ban alumina and aluminium ore exports to Russia will also harm Russian, especially Rusal, aluminium output. According to a statement from the Australian government, Rusal receives 20% of its alumina from Australia. Rusal holds an approximate 5% share of world aluminium production, with Europe accounting for 41% of Rusal’s sales last year, and the US–8%.

However, Chinese state media reported on 24 March that China would supply 30,000 tonnes of alumina to Russia, which is currently being shipped to Siberia. However, Wood Mackenzie predicts that Russia will not be able to fill the gap in production supplies or exports by turning to Chinese and other Asian markets as it has limited rail capacity towards the east.

The European Union (EU) has also banned imports of steel strip and rolled steel from Russia and Belarus, but Russian-made aluminium and metal packaging have yet to be targeted by international sanctions.

Patel added that it may turn out that Russia’s only option, especially for UC Rusal, will be to continue to source alumina from China, though this is not without political ramifications for Chinese trade, which could suffer indirectly from sanctions as a result and suffer reputational loss internationally through backing Russian industry.

Andrey Vernikov, head of the investment analysis and training department at Moscow-based Univer Capital, predicted that the USA’s Ball Corporation, the world’s largest can producer, would cease the construction of a new Russian facility Ulyanovsk, western Russia, due for completion in 2023, and Ball announced its decision to leave Russia on 28 March. PepsiCo, Coca-Cola, Heineken and Carlsberg have all exited the Russian drinks market.

As for Ukraine’s metal packaging sector – it is important. Before Russia invaded, it produced 80,000-100,000 tonnes of packaging per year, according to the Club Packagers of Ukraine association, mainly aluminium tubes for household chemicals, beverage cans, trays of various shapes made of rigid aluminium foil for instant food and tin cans of various sizes.

Ukraine also has major production of alumina and iron ore. The US Geological Survey (USGS) reported it produced 1.48 million tonnes of alumina in 2015 and 67 million tonnes or iron ore concentrate that year.

Veronika Khalaydzhi, president of the Club of Ukraine Packagers said future forecasts of production are currently very difficult to make, telling CanTech International that should Ukraine beat off the Russian attack “it will be necessary to examine the state of Ukrainian enterprises and resume production of metal packaging.” She said: “It is important that the world community, including associations of aluminium and tin packaging, initiate the creation of an international fund for the restoration of Ukrainian production,” and urged companies and associations to aid Ukrainian enterprises.

In the regions where fighting continues, metal packaging production has largely been halted, with some plants damaged or even destroyed, said the Club of Ukraine Packagers. This applies to the region north of Kyiv (a can packaging plant run by Poland-based Canpack), the hard-pressed Kharkiv region (a tube plant run Tubniy Zavod), and the Odessa region, where Khalaydzhi said a metal packaging plant (that she has not named) has been damaged.

Some companies (such as Kiev-based aluminium food packager StudioPak) are only currently able to supply products that remain in their warehouses. New products are not being produced due to lack of raw materials (aluminium foil, aluminium blanks for tubes and cans, and tin, for example). Valery Krivoshey, editor-in-chief of Ukrainian packaging magazine Upakovka, told Packaging Europe magazine that industry executives are formulating a programme to analyse the state of the Ukraine packaging industry after the war.