- 25% tariff on all aluminium imports into the US to increase can packaging cost by 10%
- Among beverage players, brewers to be disproportionately impacted due to low substitutability of can packaging
- While massive tariff worst case scenario is avoided, increased operating uncertainties could slow economic growth in Asia
- Prefer companies with strong execution track record, flexible packaging mix, and less exposure to Asian markets
25% tariff on all aluminium imports into the US is set to weigh on beverage companies’ US operations, particularly brewers. Aluminium cans are a key packaging material across the beverage sector, with brewers having a higher can-packaging ratio of approximately 40% compared to c.25% for soft drink players. Following the tariff announcement, the US aluminium premium surged from an average of USD430 in 2024 to over USD900 by Mar 2025. This reflects an estimated 35% effective increase in US aluminium prices and a corresponding estimated 14% rise in US aluminium can costs. While soft drink companies like Coca-Cola are exploring a higher polyethylene terephthalate (PET) packaging mix to mitigate rising costs, brewers may have far less flexibility. PET poses taste preservation concerns for beer, while glass, although an alternative, has higher transportation costs, limiting substitution options. As a result, brewers with lower exposure to the US market and soft drink companies are likely to be less impacted by the increase in packaging costs.
Trump’s tariff U-turn is stoking fresh macroeconomic uncertainty worldwide, with Asia especially exposed. President Trump first slapped tariffs of over 30% on export-reliant Asian economies like Vietnam and Thailand, only to backtrack with a 90-day pause, though a blanket 10% tariff still lingers. Meanwhile, tariffs on China have surged to 125% after Beijing retaliated with an 84% levy on US goods. While the trade war rhetoric has temporarily receded, Trump’s next move remains a major wild card. In the US, consumer confidence plunged to a four year low in Mar 2025, even before the current tariffs took full effect, on worries of higher inflation and recession fears. With markets now more volatile and higher prices brought about by higher tariffs, we believe confidence would deteriorate further. In Asia, a worst-case scenario of massive tariffs looks unlikely, but the operating environment has clearly become more uncertain. We believe this could weigh on investment and hiring decisions, slowing the region’s economic growth.
Prefer companies with strong execution track record, flexible packaging mix, and diversified geographical profile. In this challenging and uncertain environment, we see consumer staples outperforming the broader market. Execution will be critical, not only in pricing but also in delivering the right product and promotions. Within the beverage sub-sector, we are especially constructive on companies that have greater flexibility in their packaging mix and are more exposed to Latin America (e.g. Brazil) and Europe, and less to the US and Asian markets that are more vulnerable to shifting US tariff policies.
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