Brace for High Refrigerant Prices this Summer
Supply struggles in China, anti-dumping duties in US are contributing factors
Contractors may well have been wondering about the noticeable increase in R-410A prices. A 25-pound cylinder that was selling for about $150 back in December is now selling for about $240.
According to industry sources, the cause of recent price increases on R-410A and other hydrofluorocarbons (HFCs) can be largely traced to China.
In January, the Chinese government strengthened workplace safety rules at fluorspar mines and in hydrofluoric (HF) acid plants. These new rules caused some of the HF plant operators to stop production until they could meet the new regulations. Since HFC refrigerants are made from HF, the short supplies of HF have impacted HFC prices.
In addition, a major perchloroethylene (PCE) plant in China took an unplanned outage after an equipment failure in the beginning of the year. This plant supplied PCE, which is a key raw material to many of the largest HFC-125 producers in China. PCE is a key component of HFC-125, and HFC-125, in turn, is a key component of R-410A.
Finally, antidumping duties imposed on imports of some Chinese refrigerants have contributed to the higher prices in the U.S.
All of these factors add up to indicate that global supplies of R-410A could be tight — and, therefore, prices will be high — during the 2017 cooling season.
FACTORS IMPACTING HFC COMPONENTS
Jim Bachman, commercial director, Chemours North America Fluorochemicals, said several factors influencing raw materials in China used to produce refrigerants have impacted HFC component pricing and availability coming out of China and, therefore, around the globe. These factors include:
- Lower inventories for producers during the period around the Chinese New Year;
- A safety incident at an anhydrous hydrogen fluoride (AHF) facility, which has led to reduced availability of raw materials;
- The increased environmental constraints in China on fluorspar and HF production as well as hydrochloric acid byproduct disposal; and
- Tightness in the PCE supply.
“As a result of these dynamics, prices for HFC blend components — especially R-125, which is a component in many commonly used HFC blends, including R-410A, R-404A, R-507A, R-407C, and R-407A — have more than doubled over the past few months, and supplies are tight,” Bachman said.
“In addition, separate from the market dynamics in China influencing material supply, the U.S. International Trade Commission recently ruled that Chinese R-134a imports were being dumped in the U.S. at prices far below fair value, which caused material injury to the U.S. industry producing R-134a. As a result, antidumping duties ranging from 148-167 percent are being imposed on all imports of R-134a from China. This will bring pricing up and restore conditions of fair trade in the U.S. market.”
Bachman added it likely will take some time for some of the factors impacting supply tightness to resolve, and they will persist at least into the third quarter of 2017 as some elements, such as increased regulations in China and anti-dumping duties on R-134a, will persist for the foreseeable future.
RELIANCE ON CHINA
Brad Kivlan, CEO, Dynatemp Intl. Inc., noted that over the past decade, U.S. suppliers have increased their reliance on China-based manufacturers for packaged HFC blends, such as R-410A, R-404A, and R-407C, and component refrigerants, such as R-125, R-134a, and R-32.
“R-32 and R-134a component refrigerants are widely available around the globe,” Kivlan told The NEWS. “However, China-based manufacturers produce a significant amount of the component refrigerant R-125 that is used in the blending of HFC refrigerants consumed in the U.S.”
Kivlan also cited the antidumping duties as an important factor in the price increases.
Beginning June 22, 2016, off-patent HFC blends from China were assessed a 101.82-216.37 percent antidumping duty, he noted. This, in effect, doubled the cost of off-patent HFC blends from China. Component refrigerants, such as R-125 and R-32 that are used in the making of off-patent HFC blends, were not included in the Commerce Department’s Aug. 17, 2016, final antidumping order regarding HFC blends. Then, on Feb. 22, 2017, Chinese-produced R-134a was assessed a 148.79-167.02 percent antidumping duty.
“The impact of these recent antidumping duties has forced foreign and domestic refrigerant suppliers to acquire only component refrigerants — R-125, R-32, R-134a, etc. — from China to blend refrigerants — R-410A, R-407C, etc. — and fill cylinders in the U.S. for U.S. consumption,” Kivlan said. “This transition also places a higher demand on the supply of ISO tankers that are used to transport component refrigerants.”
According to Kivlan, OEM demand for Chinese-produced R-125 in March and April was up 60 percent compared to the same time period last year.
“The OEM demand has fallen sharply, so we’re beginning to see R-125 supplies loosen up, and it appears that costs have plateaued,” he said. “Keep in mind, it will take roughly 45 days for product to reach the U.S., so pricing may remain high through the third quarter of this year.”
Honeywell Intl. Inc. reps agreed that strict enforcement of government regulations, license renewals, and unplanned plant outages in China have affected the supply of raw materials used to produce certain refrigerants, which in turn impacted global pricing.
“Honeywell operates one of the largest HFC-125 plants at the same location as the new [hydrofluoroolefin] HFO-1234yf plant we just opened on May 16 in Geismar, Louisiana,” Honeywell stated in a release. “We are working hard to help offset some of the pressure created by these factors. We expect to be able to supply our customers’ requirements this year, as usual, albeit at higher prices as a result of global cost escalations.”
OTHER POSSIBLE FACTORS
Gordon McKinney, vice president and COO, Icor Intl. Inc., said the R-410A supply crisis may have reached critical mass with prices reaching all-time highs in many areas of the country and inventories as thin as they have possibly ever been. In addition to the contributing factors discussed here, an increase in R-410A equipment sales driven by the closing of the “dry charge” system loophole may be contributing to the shortages, he noted.
Another possible factor, according to McKinney, could be a backlash from the anti-dumping lawsuits levied against the Chinese refrigerant producers.
“It is not so hard to believe, as some do, that a part of the pricing and availability issues we have today have been, to some extent, fabricated by the Chinese manufacturers as retaliation for the anti-dumping suits,” McKinney said. “Another factor to consider, that no one would ever want to admit to, is that opportunism may also be contributing to this issue. As the old adage goes, ‘In the midst of chaos, there is also opportunity.’”
PLAN FOR SHORTAGES
Jay Kestenbaum, senior vice president of sales and purchasing, Airgas Refrigerants Inc., said contractors should plan for rising prices and spot shortages of R-410A and any other refrigerant dependent upon fluorspar continuing through the season.
“Contractors will need to have inventory available,” Kestenbaum told The NEWS. “Some contractors will run out, and their customers will be stuck.”
He added that because the industry depends upon worldwide feedstocks and components, this type of event can occur much more easily in today’s global marketplace. No one manufacturer is in control of its supply chain and the components needed for these refrigerants.
However, the higher prices present an opportunity to remind the industry about the values of reclamation.
“If we all take reclamation seriously and recover and reclaim as much refrigerant as possible, we’ll mitigate some of these spikes,” Kestenbaum said. “We have to do more. As an industry, we have to expand our awareness and recover and reclaim more gases.”
Publication date: 7/3/2017