Can Horizontal Integration Restore The Profitability Of Two-Piece Cans: Taking Origin Material's Acquisition Of COFCO Packaging As A Case

Can horizontal integration restore the profitability of two-piece cans: Taking Origin Material's acquisition of COFCO Packaging as a case

Metal packaging is massive in scale but has long been profitable, especially two-piece cans. It is made of aluminum and mainly used for beer and carbonated beverages. The product is homogeneous, with overcapacity and concentrated customers, resulting in perpetual price declines year-round. In 2025, Origin acquired and privatized long-term competitor COFCO Packaging, causing a sudden increase in the concentration of the domestic two-piece can industry.

Whether increased concentration equals profit recovery affects both the success or failure of the deal and whether the entire industry can emerge from low gross margins. This article uses first-hand data from Origin Farm's 2025 annual report and Q1 2026 report to distinguish apparent profit from main business profit, answering one question: Has the signal of profit recovery already appeared, and can it be sustained?

Starting point: Why cans with two pieces haven't made money for a long time

To understand this acquisition, we first need to understand why the two-piece jar has not been profitable for a long time. There are four reasons that overlap with each other.

Homogenization. The two-piece tank process is mature and standardized, and products from different manufacturers show almost no differences in physical properties. When beer and beverage manufacturers procure, besides stable quality and supply, price is the main variable, making it difficult for can manufacturers to earn a premium based on quality.
Cyclical overcapacity occurred. From 2022 to 2024, the metal packaging industry has once again entered a phase of capacity expansion, with many companies building new production lines and intensifying competition. Supply growth outpaced demand, and prices followed downward. According to estimates by Northeast Securities, the average domestic price of two-piece cans in 2024 has fallen back to about 0.47 yuan per can. For comparison, in 2023, China's two-piece can market size was about 26.7 billion yuan, with demand about 60.7 billion cans. The average price per can is about 0.44 yuan, indicating that unit prices have long remained low.
Concentrated and strong customers. The downstream of Erpian Can is highly concentrated among leading beer and beverage companies, with major clients including AB InBev, Coca-Cola, China Resources Snow Brewery, Tsingtao Brewery, Carlsberg, and others. These customers have large purchasing volumes and a wide range of supplier options. Can manufacturers generally adopt a close-range layout, building factories within a 500-kilometer radius of customers to supply goods. Once a heavy-asset, localized production line is built, companies often become passive in price negotiations to maintain capacity utilization.
Costs are rigid and exogenous. Origin 2025 annual report shows that materials and other costs account for 81.88% of core business costs, while direct labor accounts for only 3.87%. This means gross profit is almost entirely determined by the price difference between the raw material purchase price and the product's selling price. Aluminum and tinplate are bulk commodities that follow the market, with prices determined by the upstream market, leaving cans with almost no room for negotiation. When upstream costs rise and downstream price increases are blocked, the price gap is squeezed at both ends.

These four factors together determine the low gross margin of two-piece cans. The hope placed on horizontal integration is precisely to change the second and third points by increasing concentration, allowing supply to converge and pricing power to return.

What has this integration changed?

Origin Origin's acquisition of COFCO Packaging marks the largest horizontal integration in China's metal packaging industry to date.

In 2023, COFCO Packaging ranked third in the domestic two-piece can market share, and also operates businesses in three-piece cans, industrial steel drums, plastic packaging, and metal caps. Before the acquisition, the domestic two-piece tank landscape was roughly dominated by Baosteel Packaging, Origin Chemical, COFCO Packaging, and Shengxing Co., Ltd., with the top three holding about 75% of the market share.

After the acquisition, the landscape underwent substantial changes. According to brokerage estimates, the CR3 (combined market share of the top three companies) in the two-piece tank industry rose to about 75% to 80% (Northeast Securities nearly 80%, East Money over 75%), while Origin Chemical's market share rose to about 37% to 40%, becoming the absolute leader. The market has shifted from competition among the four giants to an oligopoly structure, theoretically establishing a structural foundation for coordinated supply and stable prices.

Besides structural changes, there are two supporting actions.

First, the willingness to converge on the supply side. Following the self-discipline initiative of the Metal Container Professional Committee of the China Packaging Federation in October 2025, leading companies are more willing to resist internal competition, and domestic two-piece tank capacity is expected to stop net growth; In December 2025, Anhui and other regions will successively issue local industry self-regulation initiatives, advocating a shift from price competition to value competition. Several companies are simultaneously investing new capacity overseas. Origin has also built two new tank production lines in Thailand and Kazakhstan, and plans to relocate some domestic production line equipment overseas. If these measures are implemented, they will support domestic tank prices from the supply side to halt the decline.
Second, the expansion of business structure. It was acquired and merged into businesses such as three-piece tanks, industrial steel drums, and plastic packaging. The gross profit levels of these businesses differ from those of two-piece tanks, and the merger will change the company's overall profit structure. This is crucial when analyzing gross margin later.

The surge in concentration provides the necessary conditions for earnings recovery, but necessary does not equal sufficient. Whether the oligopoly structure can translate into actual price increases and a rebound in gross profit depends on cost trends, structural effects, and execution.

Cost side: aluminum and tinplate are two opposing lines

To analyze Origin Money's earnings, we must split the cost side into two lines. The two-piece and three-piece cans use different raw materials, and their trends are opposite.

Aluminum for two-piece tanks remains high. In 2025, the annual average domestic spot price of electrolytic aluminum will be about 20,600 to 20,800 yuan per ton, up about 4% year-on-year, with LME aluminum prices rising even more during the same period. Entering 2026, aluminum prices fluctuated at high levels: in Q1, domestic spot prices once approached 25,000 yuan per ton, but by early July, Yangtze spot A00 prices had fallen to about 22,800 yuan per ton, and LME was about 3,090 USD per ton. Domestic electrolytic aluminum production capacity is constrained by the 45 million ton policy red line, limiting supply growth space and maintaining a price center at a historically high range. For two-piece tanks where aluminum is the main cost, this is a persistent cost pressure.

The three-piece can uses tinplate, making the trend even more complicated. Tinplate is a tin-plated steel sheet composed of cold-rolled steel base material with a tin-plated layer. According to Mysteel data, the national average spot price of tinplate in 2025 will be about 6,209.5 yuan per ton, a year-on-year decrease of 7.49%, mainly due to the downward shift in steel price center, dragging down substrates. However, the price of tin ingots used for tin plating continues to rise, with the average annual price rising from 212,700 yuan per ton in 2023, 248,100 yuan in 2024, to 273,700 yuan per ton in 2025, and at one point surpassing 400,000 yuan per ton in 2026. Substrate prices fell and tin prices rose, offsetting these factors, resulting in a high fluctuation in the overall cost of tinplate in 2026, with industry profits under continued pressure. In addition, Chinese tinplate exports face U.S. anti-dumping duties and the EU carbon border adjustment mechanism, creating uncertainties in external demand.

The difference between the two lines has direct implications for profit judgment.

The profitability of two-piece cans is highly sensitive to aluminum prices. According to Northeast Securities calculations based on Baosteel Packaging's 2024 data, assuming aluminum prices remain unchanged, for every 0.01 yuan increase in the unit price of two-piece cans, unit net profit grows by about 45%; Eastmoney's estimate is that a 1 cent increase in net profit per two-piece can can boost Origin Origin's performance by nearly 300 million yuan. A 1 cent of price increase space can significantly change profits, which in turn shows the current thin net profit per can.

Therefore, whether the increase in concentration can drive even a slight rebound in can prices is the core variable for the profitability recovery of two-piece cans, and its importance may even surpass the fluctuations in aluminum prices themselves.

Full year 2025: Growth attributable to shareholders masks decline in core operations

When analyzing 2025 profits, it is necessary to look at the net profit attributable to shareholders of the listed company (net profit attributable to the parent company) separately from the net profit after deducting non-recurring gains and losses (net profit excluding non-recurring items). The two are heading in opposite directions for 2025.

On the surface, profits are growing. In 2025, Origin Origin's operating revenue will reach 24.02 billion yuan, a year-on-year increase of 75.68%; Net profit attributable to shareholders was 1.007 billion yuan, up 27.35% year-on-year.
Looking at the main business, profits are declining. Net profit excluding non-recurring items during the same period was only 503 million yuan, down 33.89% year-on-year. The difference between attributable income and non-recurring gains and losses to the parent company is about 500 million yuan in non-recurring gains and losses in 2025, while in 2024 this figure is only about 29 million yuan. In other words, the growth in net profit attributable to the parent company was almost entirely supported by one-time gains, with main business profits actually dropping by about one-third.
Quarterly data is clearer. In the first quarter of 2025, net profit attributable to shareholders reached 665 million yuan, but net profit after deducting non-recurring items for the quarter was only 189 million yuan, a difference of about 476 million yuan, mainly from one-time gains from COFCO Packaging's consolidated statements. By the fourth quarter, both net profit attributable to shareholders and net profit excluding non-recurring items turned to losses, with negative 70 million yuan and negative 64 million yuan respectively. The full-year profit growth mainly relied on one-time gains in the first quarter.
The decline in main business profit is reflected in gross margin. The gross margin for packaged products and services in 2025 is expected to be 14.01%, down 4.12 percentage points year-on-year. The decline comes from three aspects:
The revenue jump was consolidated. Revenue grew by 75.68%, mainly because COFCO Packaging was included in the merger scope in January 2025, with as many as 72 new entities added that year. This is a change in the consolidation caliber, not endogenous growth.
Business structure is deepening downward. The merged industrial steel drums and plastic packaging businesses had lower gross margins than two-piece tanks, diluting the overall gross margin. The company's own filling service gross margin is even negative, expected to be about -9% in 2025. The proportion of low-margin and negative gross margin businesses has risen, which has significantly lowered the overall gross margin.
Raw materials and new line climbing. High aluminum prices have pushed up the cost of two-piece cans, and new overseas production lines are in the ramping phase. The fixed costs per unit of product are relatively high, and both factors together suppress gross profit for the year.

Therefore, the real situation for the full year 2025 is: scale expanded significantly due to consolidation, but core profits were pressured by rising raw material costs, business structure sinking, and M&A expenses, and were merely masked by one-time gains. To determine whether the integration truly improves profitability, a window is needed to eliminate the interference of consolidation jumps.

Q1 2026: Main business improvements overshadowed by apparent profits

This window is for the first quarter of 2026. COFCO Packaging will consolidate its consolidated results starting January 2025, so the year-on-year figures for Q1 2026 are a comparison of post-integration and integration, excluding disruptions caused by consolidated jumps for the full year 2025.

Interestingly, this season's parent attribution and non-deduction are in the opposite direction, but the full-year 2025 is exactly the opposite.

On the surface, the Guimu is declining. Net profit attributable to shareholders in Q1 2026 was 517 million yuan, down 22.19% year-on-year. Looking at this alone, it seems profits are deteriorating.
Looking at the main business, non-non-profit items are rebounding. Net profit excluding non-recurring items was 319 million yuan during the same period, up 68.60% year-on-year; Operating revenue was 7.207 billion yuan, a year-on-year increase of 29.29%. The comprehensive gross margin, calculated by inverting operating revenue and operating costs, was about 14.47%, compared to about 13.60% in the same period last year, up about 0.87 percentage points year-on-year.

There are four reasons why the attribution to the parent company declined while the deduction rebounded:

Disposal gains: In Q1 non-recurring gains and losses, gains from disposal of controlling subsidiary equity reached 368 million yuan, mainly from the sale of European subsidiaries.
Minority shareholders took more shares: profit attributable to minority shareholders increased from 4 million yuan in the same period last year to 178 million yuan. Total net profit in the first quarter was 695 million yuan, still up about 4% year-on-year. The decline attributable to shareholders was mainly due to changes in distribution structure, not a shrinkage in the overall portfolio.
Investment income declined: from 485 million yuan to 391 million yuan.
Exchange losses: Finance expenses increased from 101 million to 152 million yuan, mainly due to foreign currency exchange rate fluctuations.

Overall, the first quarter of 2026 mirrors the full year 2025: the full-year 2025 saw one-time returns increase apparent attribution to parent and mask the decline in main business; In the first quarter of 2026, allocation and non-recurring items suppressed apparent attribution to the parent company, masking improvements in core operations. In terms of main business, growth after deducting non-recurring items and a rebound in gross margin are positive signals in the first comparable quarter after integration.

However, the quality of this signal still requires two scrutinies:

How much improvement comes from stripping. On January 30, 2026, Origin completed the sale of 80% equity each in Benabelia and Benahung to Rexam Limited (under Ball), and the two European two-piece can companies will no longer be consolidated. Divesting low-margin assets automatically raises the average gross margin of the remaining business, which is a structural effect and does not mean pricing power has returned. At the same time, the base for non-recurring expenses in Q1 2025 was relatively low, dragged down by rising interest rates on M&A loans and raw materials, which also amplified year-on-year growth.
Can cash keep up with profits? At the end of the first quarter, accounts receivable were 8.215 billion yuan, up 38.99% from the beginning of the period; Net cash flow from operating activities was negative 54 million yuan. While revenue and profit improved, accounts receivable rose significantly and operating cash flow turned negative, indicating weak cash content in profits. If price increases occur simultaneously with account releases, pricing improvements may be partially offset by the expansion of accounts receivable.

International reference: Insights from Ball's acquisition of Rexam

To assess whether the repair can be sustained, one can refer to the most comparable horizontal integration internationally, namely Ball's acquisition of Rexam.

In June 2016, Ball completed the acquisition of Rexam with about $6.1 billion in cash plus stock, and assumed about $2.4 billion in net debt, becoming the world's largest beverage can manufacturer; To pass the antitrust review, Ball will divest assets and sell them to Ardagh for approximately $3.1 billion.

This transaction is highly similar to Origin's acquisition of COFCO Packaging: both represent the largest horizontal integration in their respective markets, and are accompanied by asset divestitures. It is worth mentioning that the European two-piece can company Origin will sell in early 2026 will be purchased by Rexam Limited, a subsidiary of Ball; Ball also holds about 4.5% of Origin shares through HSBC and BNP Paribas. Ball is also a buyer, shareholder, and international reference sample of Origin European assets.

Ball's experience offers two key points.

The recovery in gross margin after integration is not immediate. In the fourth quarter of the acquisition year, Ball-related segment performance was dragged down by depreciation from the fair value revaluation of acquired assets, and the company clearly listed revenue and gross margin improvement as targets for 2017 and beyond. Restoration is a cross-year process, not a fulfillment that can be realized in the same year of consolidation. This aligns with the phenomenon where Origin Chemical's non-recurring profit declined instead of rising in 2025: improvements in horizontal consolidated reports often lag behind transaction completion.
Scale itself does not automatically grant pricing power. Ball's value realization relies on global sourcing optimization, management fee dilution, and co-execution, rather than relying solely on market share. Even if the concentration rises to about 80% at CR3, if leading companies stillPrioritizing market share and undercutting each other, an oligopoly structure alone won't automatically translate into pricing power.

Sustainability of the recovery: Conditions and indicators

Looking at the domestic scene, whether Origin's recovery can last depends on three factors:

Supply side: The premise for can prices to stabilize is whether domestic two-piece can production capacity has truly stopped growing and whether industry self-discipline can restrict new capacity and vicious price wars.

Demand side: The can penetration rate in China is currently around 30%, well below the 60%+ level in developed countries. There is room for growth in two-piece cans, but this is a slow-moving factor, unlikely to change supply and demand in the short term.

Overseas: Gross margins for two-piece cans overseas are roughly twice those in China. If overseas capacity continues increasing after ramp-up, it could raise overall profit levels. But the ramp-up period for new lines initially depresses then improves margins, and with Chinese capacity flooding markets like the Middle East and Southeast Asia, whether high overseas margins will last still needs verification.

To confirm whether the recovery is real, we can continuously track these five indicators:

1. Single product profitability: Excluding asset disposal gains/losses, look at comparable two-piece can gross margins and adjusted net profit over multiple consecutive quarters to distinguish real pricing improvements from structural effects of divesting assets.
2. Average price per can: Watch if the average price per two-piece can stops falling and starts stabilizing or rising, which is the most direct evidence of pricing power returning.
3. Industry supply: Has domestic two-piece can production truly stopped growing, and how is industry self-discipline being enforced?
4. Cash quality: Check if operating cash flow turns positive and whether accounts receivable growth cools to match revenue growth, to test the cash content of profits.
5. Customers and overseas operations: The share of a single large customer and overseas business gross margin; the former measures reliance on major clients, the latter measures whether overseas expansion actually raises the profit center.

Conclusion

Increasing concentration is a necessary condition for two-piece can profitability recovery, not a sufficient one. Origin's acquisition of COFCO Packaging pushed domestic two-piece can CR3 to about 80%, creating a structural base to coordinate supply and stabilize prices. But caution is needed for 2025's apparent boom: net profit attributable to shareholders grew 27.35%, mainly supported by about 500 million yuan in one-off gains, while adjusted net profit fell 33.89%, indicating main business profits are under pressure. In Q1 2026, a turn appeared: adjusted net profit grew 68.60%, and gross margin rose about 0.87 percentage points – the first positive comparable quarter after integration.

However, this signal is still insufficient to prove the recovery is structural. The gross margin rebound includes the structural effect of divesting low-margin European assets, and the high adjusted growth comes from a low base; accounts receivable surged and operating cash flow is negative, suggesting weak cash content in profits. Referring to Ball's acquisition of Rexam, horizontal integration leads to multi-year gross margin recovery, and scale alone doesn't equal pricing power.

A cautious assessment is that the trend of recovering main business profit has appeared but has not yet been confirmed as a structural, sustainable return of pricing power:

- If in the next few quarters, comparable two-piece can product gross margins and average price per can both rise, and operating cash flow turns positive, we can conclude the integration is successfully converting concentration into profit recovery.
- If gross margin improvements mainly rely on asset divestitures and one-off gains, while average price per can and operating cash flow show no improvement, the recovery is more likely a temporary boost in performance.