Hulamin, which has Sub-Saharan Africa’s only major aluminium rolling operation, says the demand outlook for aluminium canning over the next five years is positive, especially with increasing concerns around the world about the high energy usage and costs associated with glass and plastic products.
Speaking after the release of results for the six months ended June 30, interim CEO Geoff Watson said the outlook for “cans’ share” of the packaging market is good on a five-year view, even as more rolling capacity is expected to come on stream around the world.
Watson, who will be interim CEO until a permanent replacement is chosen for retiring CEO Richard Jacob, said plastic bottling has its own environmental issues, while glass “has the double whammy” of not only taking a lot of energy to produce but also using significant amounts of water in recycling processes. In this context, demand for aluminium is “looking good”, with Watson saying even during the pandemic “canned sales remained very strong as people were imbibing more from home rather than going out”.
“Aluminium is a very convenient packaging to take home compared to other alternatives. There is a strong opening for can share of the packaging market over the next five years.”
Jacob, who is leaving the Pietermaritzburg-based group at the end of September after 12 years at the helm, said the company is “very happy that our product is completely recyclable”, adding that around the world “aluminium cans do seem to be grabbing market share at some pace away of the two other substitute materials”.
In SA specifically, the equation had also been “skewed a little bit” by a shortage of glass. The shortage was caused by producers not being able to produce glass for alcoholic products during the hard lockdown imposed in April 2020. Jacob said it is uncertain how long the glass shortage will persist but added: “At the moment, definitely, we see our customers in SA as well as around the world quite eagerly trying to secure their supply lines of raw materials from the aluminium rollers. The demand for aluminium canned material from the rollers is pretty firm.”
He also expects to see more capacity coming on line around the world, as well as existing rollers expanding to supply into this “short-supplied market”.
Asked about the biggest challenges facing SA, Watson said that on a global scale, the country is a “tough place to invest” with both exchange rate and sovereign risks, as well as a “very high weighted average cost to capital that you need to be able to do better than to justify capital”.
However, while these macroeconomic issues pose a significant challenge, SA is also in a good position for exports. Watson said about 45% of the materials produced by Hulamin are for the export market and with relatively low production costs and an exchange rate of about R17/$, “exports become quite attractive”. As for its results, Hulamin benefited from the higher average aluminium prices and weaker rand/dollar exchange rate, reporting that its turnover increased by 45% to R7.9bn from R5.5bn in the same period last year.
Earnings before interest and tax rose 144% to R223m, while headline earnings per share increased 147% to 47c per share.
Sasfin Securities chief global equities strategist David Shapiro said while Hulamin had released good results, they were off a “very low and erratic base” as it was dependent to a great extent on the rand exchange rate and the price of aluminium.
This resulted in the ability to outperform and underperform, depending on the vagaries of the market. “When Russia invaded Ukraine, the aluminium price went through the roof, but you never know what is going to come out of the results. It is one of these companies we never know what the next set of results will produce, because its history has been so highly volatile.”
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