London, March 16 - Tin can makers are paying about 50 percent more this year for tinplate, used to make cans, despite falling commodity prices as demand for canned food rises due to the recession, Crown Food Europe said on Monday.
Crown Food Europe is part of U.S.-based Crown Holdings, the world's largest producer of food and aerosol cans and the third-largest producer of beverage cans.
Tin cans are made from tinplate -- essentially flat-rolled steel covered with a layer of tin -- and prices have risen despite the slump in commodity prices.
"Historically, times of economic recession have tended to increase sales of canned food, as consumers curb their 'out of home' eating activity," Olivier Aubry, a vice president at Crown Food Europe, told Reuters.
The food market in Europe is currently estimated at 35 billion cans a year. "(It) is in slight growth year-on-year," Aubry said, adding that several tinplate producers had cut production in 2008.
"Our major suppliers have repeatedly threatened us with a further reduction in tinplate capacity," he said.
Tinplate is made by companies including the world's top steel maker ArcelorMittal, ThyssenKrupp's RasselStein and Tata Steel's Corus.
A Corus spokesman said the company raised tinplate prices by 40 to 50 percent this January, partly because of rising demand. The company would not comment on production cuts.
COST RECOVERY
Aubry said tinplate suppliers started to push for higher prices in the second half of 2008, when commodity markets tumbled, and that the higher costs would have to be passed on to food manufacturers.
"Margins within the packaging sector are insufficient to be able to absorb cost increases of this scale. We ... have no alternative other than to recover these costs through selling prices," Aubry said.
"All of our customers are paying new prices. Without recovery of the increased tinplate costs, we would not be able to manufacture our products with any level of profitability."
Prices of hot-rolled coil, one of the most widely used forms of flat steel, have nearly halved to between $475 and $580 a tonne since the middle of last year in Germany, China, Japan and the United States.
Tin on the London Metal Exchange, has fallen about 60 percent to around $10,450 a tonne since last May.
Most tinplate is bought on annual contracts and prices have risen since 2007. Tinplate typically accounts for 65 percent of the cost of an empty can.
Aubry would not detail Crown Food's tinplate costs as the company uses a number of suppliers around the world and the figure varies.
"This is not just a European phenomenon, it is happening in all major regions of the world," he said.
Crown Food Europe has no plans to switch to alternatives such as plastic because tin cans are economical.
"Cans are 100 percent and infinitely recyclable without loss of quality," Aubry said. "Packaging weight reductions and recycling have reduced energy ... requirements throughout the supply chain."