Wealth of metal at our fingertips
The earth below South Africans’ feet may be rich in many minerals, but one element has always been missing – this nation imports 100% of the raw materials it needs to make aluminium.
Savvy urban prospectors in Gauteng, however, have detected a mother lode of the metal spilling out of bars, restaurants and homes, in the shape of aluminium cans.
A revolution has begun in the South African packaging industry. Well over R1-billion in capital investments by Hulamin, Nampak, South African Breweries (SAB) and Coca-Cola Southern Africa will crush the old, tin-lined steel beverage can and toss it into history’s dustbin.
In the past few months, both South Africa’s largest brewer and its main soft-drink company have converted nearly all of their Gauteng filling lines to aluminium cans. The rest of the country will follow soon, completing a total swap from steel to aluminium in just a few years.
“It’s one of the most significant things we’ve done in a long time, and not just at Coca-Cola,” says Doug Dennis, the company’s technical director in Southern Africa.
“It’s a massive shift for the industry.”
The greatest impact of the shift may be felt at the bottom rung of the economy, as street collectors cash in on aluminium’s nearly perfect recyclability.
The old can’s cocktail of metals – steel on the outside, tin within and aluminium on top – condemned it to a low value.
A steel beverage can that has been used once fetches less than 3c, if a hawker can even find a scrap dealer who will take it. Aluminium cans, though less than half the weight, are worth nearly 10c each. Aluminium drink cans could potentially pump about R200-million a year into South Africa’s informal economy.
The transformation began in May, when Nampak’s BevCan division commissioned its first all-aluminium can line at its Springs manufacturing plant. A second line went into service four weeks ago. A third and final Springs line and the Cape Town factory will follow in succession over the next few years.
BevCan’s managing director, Erik Smuts, rattles off a long list of advantages the lightweight metal offers the company. Unlike tin-plated steel, aluminium can be hedged for price stability on the London Metal Exchange. Forming the can and printing on it now require less energy, and aluminium has helped BevCan to cut electricity consumption per unit by about 30%.
The production line can potentially run at a blistering 3 000 cans a minute, nearly double the rate of a steel-can line. “It’s driving economies of scale much higher,” says Smuts.
But the overriding issue for Nampak was that its customers, particularly Coca-Cola, were insisting that South Africa catch up with the rest of the world. “Our customers became a lot more forthcoming, specifying that they wanted aluminium,” says Smuts.
Other major markets such as the United States changed to aluminium cans in the 1970s and 1980s.
“For the last couple of years we’ve been pushing it,” says Dennis. “We were looking for consistency with what we’re doing globally.”
The aluminium cans also cost less.
In exchange for Nampak’s large investment – R600-million at Springs alone – Coca-Cola and SAB signed a five-year supply contract with BevCan.
Ross Heyns, an equity analyst at Kagiso Asset Management, believes Nampak’s move was partly defensive, to protect its South African can monopoly and to “guard against the risk of a competitor entering the market and installing new aluminium capacity”.
Perhaps no executive was happier about Nampak’s decision than Richard Jacob, chief executive of Hulamin, the sole South African company capable of manufacturing the aluminium sheet that Nampak requires.
Until recently, the company in Pietermaritzburg exported three-quarters of its output of rolled aluminium sheets, plates and coils. Jacob’s ambitious goal is to reverse that fraction and more, making 80% of his sales locally. “It’s a huge switchover,” he says.
Hulamin does not charge local customers more, but the savings on freight add up to a significant bonus. International freight swallows 15% to 20% of Hulamin’s gross margin on exports, compared with just 3% to 5% for domestic transport. “Local is attractive from a profitability standpoint,” Jacob says.
He expects that his largest customer at home will soon be Nampak. The two companies signed a contract for Hulamin to supply 28 000 tonnes of coil until 2015 to the Springs lines.
Still, Nampak will initially get more than half of its raw material for the new cans from the aluminium giant Novelis in Brazil. Jacob understands that using an established supplier is “prudent” for Nampak when testing new equipment. “We just have to displace them in the next contract,” he says.
Smuts at BevCan confirms that it has qualified Hulamin’s product after commissioning with Novelis aluminium.
“All trials have gone extremely well,” he says. “There’s no reason why we cannot use a lot more Hulamin material.”
Big South African customers are only half of Hulamin’s formula for success. The other half are very small South African suppliers. Thousands of informal collectors are crucial to the company’s goal to quintuple the recycled content of its aluminium to more than 25% by 2018.
At the moment, all but 5% of Hulamin’s aluminium comes in the form of virgin ingots and slabs from BHP Billiton’s Bayside and Hillside smelters in Richards Bay. Because it takes about 20 times more energy to convert mined bauxite into aluminium than it does to remelt a used can, “it’s in all of our interests to have as big a rate of recycling as possible”, says Jacob.
The best- and worst-case scenarios for the future of aluminium recycling in South Africa are already being played out in Brazil and the US. Leaving aside the states that put a deposit on beverage packaging, Americans recycle only about 40% of their cans.
Aluminium industry expert Subodh Das estimates the value of used beverage cans wasting away in US landfills at $55-billion (about R569-billion) to $80-billion – as much as the total annual turnover of BHP Billiton, the world’s largest mining company.
Perhaps worse, the energy wasted by not recycling those cans accounts for greenhouse gases equivalent to the annual emissions of a rather large country such as Egypt or Argentina.
At the other end of the spectrum lies Brazil, with a world-leading 98% can recycling rate. “Aluminium cans don’t get to the landfill,” says Carlos Morais, recycling co-ordinator of the Brazilian Aluminum Association.
“The most important pillar for this process is the collectors,” Morais says. “You have to preserve them.”
Brazil’s collectors benefit from an efficient and transparent market in which Novelis – Morais’s employer – publicly sets the price it will pay both informal collectors and dealers at 76% to 84% of the spot aluminium price on the London Metal Exchange. Scrap dealers know they must keep their margins lean to compete for the cans from collectors.
The recyclers receive the equivalent of R14/kg of used cans, more than double the top end of the range paid for aluminium by Johannesburg scrap dealers or Collect-a-Can.
Jacob at Hulamin has plans to streamline can recycling in South Africa so that more of the metal’s value passes through to collectors. The company will soon announce details of an investment in a state-of-the-art remelt facility to handle used cans.
A brief survey of street recyclers in Parktown North suggests that awareness of the opportunity is incomplete at best. One collector said that he had no idea of the going rate for aluminium. He pulled a dirty dog-food tin out of a bin, passing up a crushed aluminium Coke can worth three times as much.