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- February 01, 2002, Gene Leo Omega, Research Assoc.
During the last decade, the world aluminum industry went through a major consolidation that peaked in August 1999 with the announcement five major global players (Alcoa, Reynolds, Alcan, Algroup, and Pechiney) would merge into two companies.
Although regulators eventually forced Pechiney to remain a stand-alone company, the mega-merger created two giant corporations with operations throughout the world. Alcoa/Reynolds and Alcan/Algroup are major producers of not only primary aluminum and semi-fabricated aluminum products — their packaging divisions are also major international producers of converted flexible packaging capable of supplying multi-material packaging solutions.
Both Alcoa and Alcan removed “aluminum” from their corporate names in 2001 to emphasize the fact they are not exclusively aluminum companies any longer. Downstream integration into flexible packaging enables aluminum companies to (1) reduce their dependence on primary aluminum; (2) produce a product that is less vulnerable to economic downturns; and (3) provide a value-added outlet for aluminum.
The trend toward consolidation and downstream integration also occurred on a smaller scale among regional aluminum companies outside the US and Western Europe. Two good examples are Russia (Russian Aluminium) and India (Sterlite and Hindalco). Chinese foil production, on the other hand, is still very fragmented with 94 producers. However, several large producers of quality material are emerging in China as consumer packaging demand increases.
Foil-Based Packaging Systems
Based upon data supplied by The Aluminum Assn., packaging foil can be divided into three major categories: household/institutional foil, semi-rigid foil containers, and flexible packaging.
Household/institutional foil still accounts for more than 40% of all packaging foil consumption. It is found in more than 90% of all households, but future growth will be limited by population increase.
Semi-rigid containers (or foilware) are used for baked goods, prepared foods, catering, and household food preparation. About 7 billion containers of various sizes and configurations, are used annually in North America. They are inexpensive, lightweight, and versatile. Foil container demand dropped sharply during the 1980s and early 1990s but increased sharply in the latter part of the decade due to the increase in take-out foods (home meal replacements or HMRs). Omega believes total demand in this segment will grow less than 2% annually through 2005 due to a less vibrant economy and decreased disposable income.
The third category, flexible packaging, includes bags, pouches, overwraps, laminated tubes, aseptics, pharmaceutical blister packs, and composite cans. Flexible packaging grew at an annual rate of 3% during the 1990s, and Omega believes it will remain the most dynamic foil packaging category through 2005 due to the ongoing conversion from rigid and semi-rigid systems.
As the price of packaging materials steadily increases, packaged goods companies have determined that flexible packaging (1) uses less material than rigid packaging; (2) is more cost-effective in reducing distribution costs; (3) features high-impact graphics not available with rigid packaging labels; and (4) with the availability of reclosability features such as zippers and strips, is now more user-friendly.
Competitive Packaging Materials
Aluminum foil packaging is being challenged constantly by other materials such as barrier polymers, metallized substrates, and oxide coatings. Metallized paper replaced foil labels on glass bottles years ago, and metallized film dominates snack food packaging and fractional coffee packs.
In the mid-1980s, dual-ovenable containers (both plastic and paperboard) captured most of the market for frozen dinners and entrées. Since then, however, foil has more than held its own due to its excellent barrier properties and esthetics combined with cost-effectiveness.
Ethylene vinyl alcohol (EVOH), a promising barrier plastic when it was introduced nearly two decades ago, has been handicapped by high price and reduced effectiveness in humid conditions. The high cost of oxide-coated film (such as oxides of aluminum and silicon on polyester film) has limited its use in the US.
Outlook and Business Opportunities
While Omega projects overall growth in foil packaging through 2005 to be modest (1.7% annual growth), some niches show promise for better-than-average growth.
Laminated tubes, aseptics, and foil inner liners for cigarettes will remain packaging workhorses, but growth will be limited. Blister packs for solid-dose pharmaceuticals are gaining ground due to their performance and cost vis-à-vis bottles, but this is a relatively low-volume end-use. Pouch packaging (particularly stand-up pouches) offers the greatest opportunities due to its versatility, low cost versus rigid packaging, increasing consumer acceptance, and accelerating line speeds.
Omega has identified four end-use segments (pet food, tuna, coffee, and soup) that use about 13 billion metal cans annually as potential candidates for replacement by flexible packaging. The first three already are available in both the US and Europe; soup in foil-lined pouches currently is used only in Europe.
Of course, all 13 billion cans will not be replaced by flexibles, and foil will share some of this market with all-plastic packaging. Nonetheless, we anticipate better-than-average growth (2.6% annually) in the volume of aluminum foil used in flexible packaging. Growth will be even higher if faster pouch filling lines become available.
Gene Leo is project director at Omega Research Assoc. This article is a summary of a 129-p. report, the third prepared by Omega during the past 15 years on the subject of aluminum foil as a packaging material. For more information contact Omega at 412/366-4340.