Metal packagers caught in the crossfire of the Russia-Ukraine war
Western sanctions imposed on the Russian economy have wreaked havoc on the metal packaging industry, pushing the world’s leading companies to make a hard choice: to pull out from the market and suffer losses, or stay, bearing severe reputational risks.
Since 24 February 2022, over 1,000 companies have publicly announced they are voluntarily curtailing operations in Russia to some degree beyond the bare minimum legally required by international sanctions, according to research conducted by the Yale School of Management. This list does not involve businesses that have never had local offices in Russia but still operate in the country.
The mass exodus of Western businesses is having a profound impact on the Russian metal packaging segment, affecting all links of the production chain, from raw material supplies to distribution of final products.
Ball Corporation, one of the leaders of the Russian beverage cans market, estimated that pulling out from the country cost it $435 million due to assets depreciation.
As a result of the war in Ukraine, the company previously announced its intention to suspend
future investments in Russia and pursue a sale of its Russian business. As of 30 June 2022, the
Russian business does not meet the accounting criteria to be presented as held for sale in the
consolidated financial statements, the company said in a statement on 4 August.
Like many other companies, Ball Corporation reportedly may experience difficulties with selling its Russian business. Given the grim forecasts about the long-term economic recession and falling
Russian population purchasing power, investment activity in the country is unprecedentedly low.
Ball Corporation estimated that in 2021, its Russian plants accounted for five per cent of the company’s $112.5 billion global beverage can unit shipments. However, the future owner will have to deal with slumping demand for aluminium cans, as several dozens of beverage producers, including Coca-Cola and Pepsi, have severed their ties with the Russian market.
On the other hand, the other leader of the beverage market segment, Canpack, at the time of writing, continues to operate in Russia, the Yale School of Management reports. In a statement published on 11 April, the company said it had halted all new investments in Russia and continued to assess all options “as it may become untenable to continue operations in Russia.”
Soon after the Russian troops crossed the Ukrainian border, Canpack suspended the operation of its Vyshgorod factory not far from Kyiv, Ukraine. This part of the country saw heavy fights between Ukrainian forces and the Russian invaders for several weeks. In early March, Vyshgorod was occupied by the Russian army. Although Russians were repelled from around Kyiv and all northern regions of Ukraine, the factory is yet to resume operation.
Canpack opened its Vyshgorod factory in 2008 for €35 million, eyeing the markets of post-Soviet space and Balkan countries. The company expected production to be close to two billion units per year. Neither Canpack nor local officials have reported whether the factory sustained any damage during the hostilities.
In the past few months, several Western businesses returned to Ukraine, re-launching production facilities in the western and central parts of the country. However, the Vyshgorod region is believed to be a risky territory to resume operation. Ukrainian officials have recently warned about the possibility of a new offensive of the Russian troops to the Kyiv region from the Belarussian territory.
A twisted reality
Since early March, all canneries in Russia, Belarus and Ukraine have battled a raw material shortage. Before the war, all three countries imported tinplate primarily from the European Union, though
Russia and Belarus also manufactured tinplate.
In May 2022, Russian deputy prime minister Victoria Abramchenko reported that metal cans jumped
in price by 60 per cent to 80 per cent due to a lack of tinplate. In this background, the Russian Fish Union estimated that the average price of fish cans on the grocery shelves soared by 28 per cent compared to the previous year.
In the new conditions, Russia must fully rely on importing tinplate from China, and, according to estimates from the Russian state agencies for fisheries, Rosrybolovstvo, these quantities are insufficient to meet the domestic demand.
Russia is one of the world’s largest fish producers, catching around five million tonnes of wild fish per year. Over the past few years, fishermen had been one of the main clients of the Russian canneries, and some big fish companies had even made their own capacities for metal can production.
“There are several tinplate producers in Russia, but they fail to meet the growing demand,” commented Herman Zverev, president of the Russian union of fishermen, Varpe, admitting that almost all import supplies have stalled since early March.
Zverev has called on the authorities to return to the Soviet-style development of the domestic metal packaging industry in order to avoid shortages and, consequently, price hikes. He suggests that Russia must seek new international partners to fill the gaps in the supply chain.
In the post-Soviet space, tinplate is produced by the Russian Magnitogorsk Iron and Steel Works, Belarussian Miory Metal Rolling Plant, and Kazakh ArcelorMittal Temirtau. However, over the past few years, Russian metal packaging manufacturers complained that local companies had not provided tinplate within the parameters required for metal packaging production. For this reason, most canneries in the European part of Russia relied on importing tinplate from the European Union, while those based in the Far East imported it from Japan and China.
“Previously, German raw materials were used for the production of cans, but due to the sanctions, metal can manufacturers switched to Chinese and Russian. Plus, they [Russian food companies] increased the supply of finished cans from China. Now manufacturers of tin containers are reconfiguring supply chains, looking for alternative channels and new partners,” the Russian Fish Union said. Russian fish processing company, Za Rodinu, has had to build up new supply chains and find new sources of raw materials to continue working and retain employees, said Sergey Lyutarevich, chairman of the company. He added that metal cans produced by the company at its own capacities were previously, by more than 50 per cent, made from imported raw materials.
Western sanctions imposed against the Russian economy have not targeted the metal packaging
industry directly. However, the restrictions are wreaking havoc on logistics and banking, and damaging all businesses depending on foreign supplies.
Lyutarevich divulged that in the past, Za Rodinu imported necessary raw materials in Europe via containers, but since European ships started refusing to call at the Russian ports, the company had to switch to transporting supplies by train.
“There is also a question of how to transfer money. We now open accounts in yuan in our Chinese banks,” Lutarevich said, referring to the sanctions imposed by Western countries against the Russian banking sector that have made clearing cross-border transactions a problematic task.
Ukraine also relies entirely on tinplate imports. In previous years, tinplate was imported from the EU and Turkey. Since the beginning of the Russian invasion, all Ukrainian ports have remained blocked by Russian forces, so supplies from Turkey have ground to a halt.
In the first months of the Russian offensive, almost all import supplies were paralysed, but since April, life has been gradually returning to Ukraine’s economy. Still, some canneries remain closed in the country, while others operate at a low-capacity utilisation ratio due to a lack of market demand, owing to economic chaos and mass immigration, as nearly 10 million Ukrainians have fled the country since the beginning of the war.
A spokesperson for the Russian metal packaging industry, who wished not to be named, said that the war will likely push the Russian market back by 15 years in development.
“Like all businesses engaged in the food supply chain, we see the main problem in the falling purchasing power of the Russian population, which has been seen steadily declining since [the Russian annexation of] Crimea. However, this year is likely to be different,” he said.
The spokesperson said that when the war began, he believed that an entire economic collapse was just around the corner. Those fears have not materialised in full, however, since June, signs of falling demand have become apparent, and investment projects in the industry are still suspended.
“I don’t think we are heading into collapse, but it looks like everything is going to be worse than it used to be. Everything is more expensive now: raw materials, logistics, energy, gas, bank loans, while people are only getting poorer,” the source said, adding that in the long run, the lack of Western equipment will also take a toll.
“I don’t believe we’ll evidence anything good in the years ahead,” he concluded.
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