Can glass bottles fill the gap left by aluminium cans?

Saad (0:01)

Hello folks, you're tuned in to Finshots Daily. I'm Saad. If you're new here, welcome. If you're returning, welcome back.

In today's episode, we explain why aluminium prices rose, how it triggered a can shortage, and whether bottles could help save the day for alcohol and beverage companies.

Before we head to the story, here's a quick word from Team Ditto. We're hosting a free two-day insurance masterclass that helps you build real financial security by understanding health and life insurance the right way. Right from understanding how to protect your family, choosing the right cover amount, and knowing what truly matters during a claim, to how hospitals process claims, the mistakes bio's usually make, and how to choose a policy that won't disappoint you when you need it the most. We will explain it all in plain language. Head to the link in the description and save your spot. Now to the story.

Indian alcohol and beverage companies have been scrambling together on some aluminum cans to packet some of their drinks since April. One reason as you know it is the West Asia crisis. Tensions around the state of Hormuz have disrupted shipping and slowed or cut off supplies of aluminum that India depends on. This shortage sent aluminum prices soaring, peaking at around $3,800 per ton sometime in the middle of this year. Prices have cooled off since and are now around $3,200 per ton. But even that is still about 25% higher than the average annual price last year. So with the festival season around the corner and demand for drinks expected to shoot up, beverage makers are having to rethink how they package their products. They're shifting to PET and glass bottles to make up for the aluminum shortage. And this seemingly simple switch is actually creating another set of problems, hurting both their businesses and their margins. To understand why, let's first understand how and why aluminum prices shot up in the first place.

The story actually doesn't start with the West Asia crisis at all. Rather, it starts with China. See, China is the world's largest producer of aluminum, producing nearly 60% of the world's primary aluminum. But towards the end of 2024, China pulled back a significant portion of its aluminum exports by cancelling a 13% export tax rebate on the metal. An export tax rebate is essentially a government refund of the VAT and consumption taxes that Chinese companies pay during the domestic production and distribution of goods. By refunding these taxes when products are shipped abroad, the Chinese government historically helped manufacturers keep their international selling prices low and remain competitive globally. The reason was simple. The world was using China's cheap aluminum for everything from construction and EVs to photovoltaic systems for solar panels and a whole lot more. But China realized that if it kept more of this aluminum for itself, it could use it to make higher value manufactured goods, rather than export the relatively low margin primary material. So it capped its production capacity at 45 million tons per year. But that was still okay because other countries were supplying aluminum too, albeit not at the very cheap prices China offered. And the global shortage was expected to be just 6 lakh tons until the West Asia crisis went into full blaze. Countries like Mozambique and Gulf producers like Qatar and Bahrain had to close their aluminum smelting facilities because producing aluminum requires enormous amounts of electricity and the war disrupted energy supplies. But that wasn't the only problem. These countries also rely on imported raw materials such as bauxite and alumina to produce aluminum.

And much of this material travels by sea through the Strait of Hormuz, including supplies coming from such countries as Brazil and Australia. So when shipping through the Strait was disrupted, the problem hit the aluminum industry from both sides. Raw materials couldn't come in easily, and finished aluminum couldn't go out. All of this meant that nearly 1.6 million tons or nearly 9% of the world's aluminum smelting capacity was affected. And when you suddenly take that much supply out of a market that was already expected to be short, prices naturally start shooting up. Countries like India, which imported aluminum from these regions, started to feel the pinch. Which is why you see the whole frenzy of diet coke cans disappearing from store shelves in metro cities. Now at this point, you could ask, but India already produces a lot of aluminum. In fact, we are the second largest producer of it. So why the drama?

Well, you would be right. But the thing is, India produces a lot of its raw aluminum through companies such as Hindalco, Vedanta and Nalco. Making a beverage can, however, requires something more specific. First, you need aluminum.