Japan aluminum's tipple of choice: US bourbon in a can

Jim Beam, the world's biggest-selling US bourbon whiskey, is sold mostly in aluminum cans in Japan -- which could potentially take an unintended hit from the US' recent move to impose a 10% levy on aluminum imports.

Depending on how world leaders respond, global aluminum supply flows may change if there are hiccups in the supply chain and volatility in prices.

Australia, which has been exempted from the new US aluminum and steel tariffs, is not a major aluminum exporter to the US; its customers are mostly in Japan and South Korea.

However, Asian customers of Australian aluminum may soon find themselves competing with US buyers -- and may consider switching instead to supply from Russia, Malaysia, Indonesia, India or even the Middle East.

Related blog post -- Will PET bottles change tastes of Japan’s aluminum can collectors?

The Australian exemption may also change how aluminum premiums are negotiated in Asia.

For 2018, buyers and sellers will honor existing annual term contracts.

But if Australia's US tariff exemption is maintained in 2019, will Australian producers want to continue annual contracts with Asian buyers? If not, the quarterly contract premium system that has been the leading market indicator in Asia for decades may change.

Uncertainty does not allow businesses to make long term plans. Jim Beam -- owned by Japanese distiller Suntory since 2014 -- and its peers, and other aluminum end-users, may start looking for alternatives to cans.

US beer makers say the tariff will raise their production costs by 1 cent/can, according to the US Can Manufacturers Institute.

With major brands such as Heineken already selling some beer product lines in PET bottles, any discussion of how to keep beer packaging costs down raises the specter of PET or paper being considered as alternatives.

In Japan, wine is already available in PET bottles and paper packs. Carbonated drinks are sold in PET bottles, too.

Cost control has always been a strong change driver. And the drive is stronger in a shrinking market.

While US beer production continues to grow amid the popularity of craft beer, Japan's beer market is shrinking.

Japan's domestic beer production fell 1.9% in 2016 and a further 2.9% in 2017, and its per capita consumption was a lowly 54th globally in 2016, latest data showed.

Its aluminum beverage can market is also shrinking overall. Demand was 10.3 billion cans in 2012, but had fallen 7% to 9.57 billion cans by 2017. A further 2% decline is forecast for 2018, to 9.38 billion cans, according to the Japan Aluminum Can Recycling Association.

But in the non-beer alcoholic drink segment, there is a glimmer of hope: Consumption from aluminum cans surged 12% in 2016 and a further 10% in 2017 to 3.54 billion cans.

For the moment, the decrease in demand from beer makers is being covered by the increase from whiskey.

And the Japanese aluminum industry will undoubtedly not cede ground in the beverage market without a fight -- beverages account for 20% of rolled and extruded aluminum consumption in Japan, more than the automotive sector.