Sport will boost demand

Beer consumption in China, the world's largest producer of the golden spirit, is expected to grow significantly. According to CNBC, this should be mainly due to a number of major sporting events such as Euro 2024, Copa America, the Olympic Games in Paris and others. The expectations come after a decline that is estimated for the first half of the year compared to the same period in 2023. Beer consumption in the local market is projected to reach more than $124 billion in 2024, with the estimate including households, restaurants and bars. By comparison, China's beer industry generated revenues of more than US$120 billion in 2021, coming mainly from the alcoholic version of the beverage. Overall, the country's brewing industry is the fastest growing in the world. And while it has faced various challenges in recent years, beer is intrinsic to sport and historically, increased consumption can always be seen in the summer and at such major events.According to CNBC, for example, bars and restaurants across the country rode the wave of the European championships, a trend highlighted by Chinese online database QiChaCha. The number of bars and beer-related businesses increased by 7,000 last year, according to it.

Quality comes first

The shift of Chinese consumers towards premium products, which is also the focus of manufacturers, may also be boosting the beer industry's growth. Nomura's February 2024 report suggests growth potential in the premium segment, underpinned by affordability and a shift in interest as the range continues to modernise. The report cites the Japanese market as an example, where premium beer sales outperformed the overall market between 2008 and 2019 despite declining sales volumes. As China's middle class expands and consumers become more quality-oriented, brewers are strategically strengthening their product portfolios.

Cheap barley reduces costs

Other key factors contributing to the positive outlook are falling costs associated with beer production in terms of barley and packaging materials. According to CNBC, recent data from China's customs agency suggests that the price of imported barley fell 30 percent year-on-year to $273 per tonne in the first quarter of 2024. This reduction in raw material costs is expected to persist throughout the year, which would mean a significant reduction in financial outlays for brewers.However, whether this will translate into final prices for consumers remains questionable.

Evolution of the raw material price on the stock Exchange

Paradoxically, as recently as January 2024, an analysis of Energy and Climate Intelligence Unit (ECIU) data estimated that wheat, barley, oats and oilseed rape production could be reduced by around 4 million tonnes this year, or around 17.5 per cent compared to 2023, as a result of climate change. In fact, wet winter weather and waterlogged soils hinder planting. This should put upward pressure on the market price of barley. Global barley prices stood at USD 133 per metric tonne in June, down 24 per cent year-on-year and showing that the commodity price is still falling. The highest level in the last 5 years was recorded in April 2020, when barley traded below USD 98 per metric tonne.

Global barley value trend over the last 5 years. (Source:International Monetary Funf) *

How are Chinese breweries' stocks faring?

The largest beer producer in China is China Resources Snow Breweries Ltd (CR Snow) with a market share of up to 23.2 percent. But over the past year, the company's value on the Hong Kong Stock Exchange has fallen by more than 44 percent.* It is also in the red when looking at five-year performance, with its lowest point in June/July. As of July 15, the stock was trading at HK$27 per share (US$3.46).

CR Snow's value development over the past 5 years. (Source: MarketWatch) *

China's second largest brewer, Tsingtao Brewery Company Limited, boasts up to 16.4 percent market share in the local market. Looking at five-year performance, while we can see that the company's stock market value is in slightly green numbers, it has written 31 percent off its value over the past year. It reached a five-year low in March 2020 around CNY39 (USD5.36) per share As of 12 July 2024, the price was CNY69 (USD9.49) per share.*

Tsingtao Brewery's value development over the past 5 years. (Source: Google Finance) *

The Japanese are in the green

Looking at the five-year development of the shares of the Japanese beer producer Asahi Group Holdings, which is Japan's largest beer producer, and which includes, for example, Plzeňský Prazdroj, we can see that they are in the green numbers despite some corrections. Their lowest point during this period was during the pandemic, in October 2020, when they were at around JPY 3,320 (USD 21.08) per share. As of July 12, 2024, their value stood at JPY 5762 (USD 36.59) per share.*

Asahi Group Holding's stock performance over the last 5 years (Source: Google Finance) *

European beer stocks in the red

Shares of beer companies in Europe have not fared too well in recent years and are in the red when looking at five-year performance. Both Dutch Heineken and Danish Carlsberg have gone through very volatile years with the biggest corrections in the spring of 2020. Carlsberg hit a five-year low on 20 March 2020 at DKK 707 (EUR 94.75). Its share price on 15 July 2024 was at DKK 853 (EUR 114.32). Heineken, which is Europe's largest beer producer, hit its five-year low on 3 April 2020, when its shares were trading at EUR 70.78, and in mid-July they were trading at EUR 88.94 per share.*

Heineken's share performance over the last 5 years (source: Google Finance) *

Development of Carlsberg shares over the last 5 years in DKK (source: Google Finance) *

The Belgian-Brazilian company Anheuser-Busch InBev, which is the largest beer producer in the world, has also had a volatile period, but not that significant. Looking at five-year performance, the company's shares are still in the red, but on an annual basis they are already slowly recovering, and as of July 15, they had appreciated around 7 percent, with a price of €55.40 per share.*

Anheuser-Busch InBev's stock development over the last 5 years (source: Google Finance) *

The dawn of better times

However, after periods of decline, Western European brewers are poised for a recovery in beer sales, boosted by the aforementioned sporting events, but also by slower inflation. Brewers such as Heineken (HEIA) and Carlsberg (CARL-B) saw volume growth in the first quarter of 2024, signalling a positive trend. Belgium's Anheuser-Busch InBev (ABI) is also expected to recover, with volume forecast to rise 1 percent this year, according to May estimates cited by Reuters. It could be helped by Budweiser Brewing Group subsidiary UK&I, which sponsored the England national team during Euro 2024 and has also partnered with the Summer Olympics with its Corona Cero non-alcoholic beer. The positive trend is also predicted by Technavio's latest report, which predicts that the global beer market is expected to grow at a compound annual growth rate (CAGR) of around 4 per cent between 2024 and 2028 to reach more than $148 billion.

Olivia Lacenova, principal analyst at Wonderinterest Trading Ltd.

* Past performance is no guarantee of future results.