Experts suggest that the capacity of Ukraine’s can making industry accounts for nearly 550 million units of cans per year, which means that manufacturers only have to operate at 60 per cent of their actual capacity.
However, during the last two years can makers in Ukraine have been going through the perfect storm, as Russian annexation of the Crimea, and armed conflict in Donetsk and Luhansnk, has decimated the country’s economy and demand for cannery at the domestic market. At the same time, devaluation of the hryvnia has increased prices of tinplate to unprecedented levels.
“In 2015, the Ukraine metal packaging market was reduced in size by 17 per cent to 317 million units,” said Julia Famenko, senior expert of Ukraine’s analytical agency Pro-Consulting, who recently conducted a study of the Ukraine can making industry. “The hard economic situation definitely influenced the country’s cannery market, as all major players had to cut the volume of production, primarily due to the rise in the cost of raw materials.”
In general, the situation of Ukraine’s cannery market is tightly connected to the state of affairs in the country’s food industry, where there is an obvious lack of stability in the region. According to Famenko, at least 90 per cent of the overall market’s structure accounts for metal package of a small size – less than 50 litres. Major industrial users of cannery in the country are food industry companies including JSC Agro, JSC Kerch Containerboard Mill and JSC Thalamius. The development of the industry reached its peak during the period 2010-2012, when the volume of production totalled 380 million units of cans per year. Since then, the demand for metal packaging has been reducing, as it faces strong competition from plastic and glass packaging. Overall, the top five major operators in the market include the following manufacturers of metal containers: JSC Impress Ukraine; LLC Metal and Packaging Plant; LLC Tin Service; PJSC Kupyansk IWC Ltd and JSC Vinnitsa plant for packaging products Vintar and Odessa canning factory.
According to market participants, the top 10 manufacturers today occupy 91 per cent of the market. The past two years have been marked not only with the fall of demand for cannery, but also with the rapid fall of import deliveries to the country. Amid strong devaluation of the hrvynia, importation deliveries have significantly impacted on the manufacturing industry in Ukraine as a whole.
“To date, the can industry is dominated with domestic manufacturers,” said Anatoli Gonchar, head of JSC Agro. “Last year, their share of SKO segment (lid for Soviet-style glass cannery) is 100 per cent, in twist-off segments it is 80 per cent and in metal cans it is at 95 per cent.
“The main sales of metal packaging are conducted directly by manufacturing companies, whilst sales of metal twist-off conducted by canneries is about 95 per cent and the other five per cent is through open trade. This is then mostly sold on via retail chains.”
Expensive raw materials and reducing demand
Recently, the main suppliers of tinplate for can production in Ukraine were ISPAT Karmet (Kazakhstan), MMK (Russia) and US Steel Kosice (Slovakia). At the same time, market participants indicated that despite low prices for tinplate at the global market, the cost of raw materials for Ukraine’s plants has jumped significantly over the last two years, as the crisis in the economy caused a sharp decrease in exchange rates. As a result, exports from Europe almost completely stopped from the beginning of 2015.
In 2013, the country’s plants purchased nearly 125,000 tonnes of tinplate for the production of metal packaging. In 2015, this figure dropped to 95,000 tonnes, largely due to the fact that JSC Kerch containerboard mill had been captured with the geopolitical conflict and lost any connection with the Ukraine market. So far most manufacturers have refrained from official comments on the situation, but all of them have had to operate with only partial capacities.
“Speaking about the current situation, we have to admit that the main problem is the absence of raw materials for the production of quality cannery production. As there are no sources of tinplate in the country, there are no cheap products that remain attractive for customers – that’s the whole situation of the market,” explained Vitaliy Malushenko, head of Kharkiv-based producer Spetskom Ukraine. In addition, the spokesperson from the country’s Ministry of Economy Development suggested that the situation brings the country’s cannery manufacturers to a great dependence on foreign suppliers.
The ministry spokesperson, who wished not to be named, said: “Imports from Russia and Kazakhstan remain more attractive (compared to deliveries from Europe), since the Russian Ruble and the Kazakh Tenge collapsed against euro almost at the same level of hryvnia. Nevertheless, Ukraine does not consider Russia as a reliable partner as during the recent couple of years, we have had a number of conflicts, when Russia not only imposed unjustified trade restrictions, but also put obstacles on transit of Ukraine goods to third party countries and vice versa.
“Since most supplies of Kazakhstan tinplate to Ukraine take place through Russian territory, we may have to face a deficit of raw materials for the can making industry for some time.”
A serious consequence to the Ukraine can making industry has also been connected with Russian annexation of the Crimea peninsula.
The region has been responsible for catching 144,000 tonnes of fish per year, which was 70 per cent of the Ukraine capacity overall. Since September 2015, trade between mainland Ukraine and the Crimea has been prohibited by the Ukraine government, meaning that the industry has had to face 2016 with a corresponding reduction in demand.
In general, representatives of Kiev-based Service-Pack Company, citing the research of country’s analytical agency World Packaging, says that currently 83 per cent of the can making market produces for the food industry, while 17 per cent produces for the chemical industry. They also add that in the segment of overall food conservation, the share of metal packaging was close to 50 per cent in 2011, but it has been reducing under the pressure of plastic packaging since that time.
It is obvious that the situation for the Ukraine metal packaging market depends on numerous factors, so market participants and experts don’t have a single opinion on how it will develop in the near future.
“Metal containers hold their position in the Ukraine packaging market thanks to the ability of long term storage of food and ease of use,” said Famenko. “However, in recent years the metal packaging industry has been pressured with other types of packaging, including cardboard, plastic, glass and other modern types. We do not expect the demand for cannery to reduce further from the current level, but it will definitely be under strong pressure.”
Similarly, Sergei Kovalenko, a representative of Ukraine’s Union of Entrepreneurs and Industrialists, holds a stark view of the future of the industry. “Most manufacturers have had to stop part of their production capacities, whilst the profitability of can making significantly dropped over the recent couple of years. The price for cannery rose by 42 per cent during this period which is far beyond the rise of cost of other forms of packaging. At the same time, the rise of the cost in prices did not compensate for the increase in production costs, so half of all Ukraine plants engaged in metal packaging are suffering problems.”
The future for Ukraine
Some market participants believe that there is no reason to panic, as the current crisis brings some new solutions to the can making industry.
“Demand for cannery in the country is really reducing, but we expect that this process will not last for long, as demand for cannery production in the food market remains strong,” said Evgenia Korcharuk, project manager of Impress Ukraine. “A number of our clients in recent years have seen major success in terms of developing export supplies of cannery abroad. Also, there is a rise in demand from the chemistry industry in the country. The situation will be volatile within the coming couple of years, but there is definitely no reason to talk about the collapse of the industry.”
At the same time, some market participants say that metal packaging, even prior to the current crisis, has been losing competitiveness to the new types of packaging, including plastic and flexible packaging.
“Such changes took place in the segment of fish cannery,” commented a representative from Service-Pack Company. “Here it has been supported with the excellent marketing move of manufacturers of plastic containers, because for the buyer it is easier to choose foods during a visit to the supermarket with the ability to assess its natural appearance rather than to consider drawings on the label. In addition, plastic packaging is easier to handle and much cheaper for producers.”
A representative of one of the largest manufacturers of cannery in the country, who wished to stay anonymous, suggested that metal packaging will hit rock bottom in 2016 and then start to grow from 2017 or 2018, with the general improvement in the situation of the country’s economy. At the same time, this would only be a possiblity if the country’s government implements a more comprehensive economy policy, particularly in the areas of energy, gas and fuel tariffs.