With ORG Technology (002701.SZ) completing its acquisition of COFCO PACKAGING (00906), the competitive landscape of the industry has significantly improved, and market supply-demand dynamics have become more balanced. Downstream price hikes are expected to drive sustained profitability recovery in the sector. Key insights from China Galaxy Securities (CGS) are as follows:
**Optimized Competition in Domestic Two-Piece Can Market Lifts Profitability Outlook** China’s two-piece can market reached RMB44.7 billion in 2023, with an 8.3% CAGR from 2018–2023, and is projected to expand to RMB77.6 billion by 2030. Industry pricing trends hinge on production capacity and downstream demand: 1) Price levels correlate closely with capacity absorption. 2) Market concentration directly influences pricing power and profitability.
Compared to global peers, China’s market remains fragmented with overcapacity before 2025. However, from 2024–2025, excess capacity will gradually be absorbed. Following ORG’s acquisition of COFCO PACKAGING, the top three players now command over 70% market share, aligning profit recovery goals. By 2026, price increases for beer and carbonated beverage clients are expected to enhance industry-wide profitability and value restoration.
**Global Benchmark: Significant Room for Profit Growth** Leading international metal beverage packaging firms have achieved high market concentration (Ball >30%, Crown >20%) through mergers and acquisitions, driving earnings growth. For instance: - Crown’s 2015 acquisitions of Mivisa Envases and EMPAQUE solidified its position as the world’s second-largest beverage can supplier, lifting gross margins by 3–4 percentage points. - Ball’s 2016 takeover of Rexam cemented its dominance in two-piece cans, boosting valuations and performance.
With greater market consolidation, global leaders exhibit stronger pricing power and profitability. Overseas giants currently price cans at RMB0.7–0.8 per unit, while domestic leaders like Baosteel Packaging average below RMB0.5. Foreign players maintain gross margins of 15%–20%, whereas China’s two-piece can sector averages under 10%, signaling substantial room for improvement.
**Historical Review: Supply-Demand Imbalance Spurs Industry Consolidation** The two-piece can packaging sector has cycled through phases of concentrated capacity expansion, oversupply-driven price wars, capacity digestion, and profitability recovery: - **2012–2017**: Surging supply and rising raw material costs squeezed margins. - **2017–2019**: Industry consolidation saw smaller players exit, while Ball and Pacific exited China. Major firms pursued M&A, lifting average prices and restoring gross margins—ORG, Baosteel Packaging, and Jiaming Packaging rebounded to 10%/13%/12%, with net margins at 7.4%/2.7%/6.6%. - **2021–2023**: New capacity from Baosteel and ORG reignited price pressure. Baosteel’s two-piece can gross margin slid from 13.3% in 2019 to 8.6% in 2024.
**2024–2025 Outlook**: Capital expenditures among top players are declining, stabilizing capacity expansion. ORG’s acquisition of COFCO further consolidates the market, strengthening pricing power and potentially restoring industry-wide prices to rational levels.
**Risks**: Volatility in raw material costs, intensified competition, and slowing downstream demand growth.
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