Rexam passes on aluminium price increases

By Ahmed ElAmin

- Last updated on GMT

Related tags Price increases Marketing Recyclable materials Organic growth Rexam

Rexam, which shed its UK glass unit for a £24m loss earlier this
year, said today it has benefited in the first half of 2005 by
successfully passing on aluminium price increases to its
beveragecan customers.

Rexam is the world's largest beverage can manufacturer. The company reported organic sales growth in the first half of 2.5 per cent, of which 1.9 percentage points were due to the recovery ofaluminium price increases in its beverage can segment. Organic sales excludes the effect of acquisitions, disposals and currency translation.

Whether Rexam​ will be able to successfully pass on further expected price increases in aluminium, along with higher energy costs, remains an openquestion for the beverage sector. Aluminum demand will outstrip supplies this year, with primary aluminium prices on the London Metals Exchange rising about 12 per cent in the first quarter.

The price fell dramatically in the second quarter but in the seven month period to the end of July have risen by 5.5 per cent. Analysts such as SB Citigrouop forecasts price increases will continuefor the rest of the year, averaging about four per cent. Price increases are expected to continue through to 2007.

Beverage cans make up 68.8 per cent of the company's sales. Glass packaging makes up another 12.7 per cent, beauty and pharma 13.5 per cent and plastic containers another five per cent of globalsales.

Aluminium is the largest raw material cost incurred by the group. In the US, the group is largely unaffected by the cost fluctuations through long term contracts. However Rexam will have toconsider the overall price increases in aluminium when those contracts come up for re-negotiation.

In Europe the company has hedged for aluminium and currency exchanged fluctuations. In its plastic packaging business Rexam is able to pass on price increases in resins to customers through itssales contracts agreements.

Sales from underlying operations, after taking into account acquisitions, disposals and currency translation effects, rose by 3.9 per cent to £1,538m in the first half of 2005compared to the same period last year. Operating profit rose by 5.4 per cent over the comparison periods, while margins rose to 12.6 per cent from 12.4 per cent.

Sales and underlying operating profit benefited from acquisitions in the beverage can, glass and pharmaceutical packaging segments during 2004. The company's plastic container businesscontinued to drag down results. Further restructuring costs were incurred for the segment. The refillable plastic bottle business faced a decline in volumes and lower prices.

In Europe sales fell by 3.7 per cent. Europe makes up 53 per cent of the company's sales. Operating profit grew by five per cent.

Overall beverage can sales were down slightly for the first half of the year but have picked up strongly since April, Rexham stated in an earnings release. Gains were offset by lowervolumes in the UK, Scandinavia and Germany.

The gains are being made by a huge demand in the energy drinks market. Rexam is the sole supplier of cans for Red Bull, an energy drinks manufacturer that uses a slim can to packageits product.

Rexam's beverage can plant in Gelsenkirchen, Germany is back in operation after being converted to produce slim cans. The plant was refitted after being initially mothballed to meetthe growing global demand for the product.

The company is building more capacity for aluminium beverage cans production in Europe, away from steel in response to consumer demand.

The company anticipates it will need to make further investments in the German market as new deposit legislation comes into effect in mid 2006.

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