R-22 Users Hit Hard in the Wallet

June 25, 2007
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Refrigerant manufacturers through late April and early May announced larger than previous increases in the per pound cost of R-22, by far the most widely used refrigerant in air conditioning.

Some sources in the industry are speculating that a 30-pound canister of R-22 that cost around $75 in late April could be near $125 once the increases are eventually passed along to contractors.

A number of contractors interviewed for this story said they have been anticipating the rising costs of R-22 and have been trying various methods of coping from passing along the entire costs or absorbing a portion.

In addition to general information about current supply-demand issues, DuPont, a manufacturer of refrigerants, recently provided the following information to its distributors: “Given the magnitude of this increase, please consider the following circumstances: ... Perhaps most significant over the past 15 years, DuPont has invested heavily in technology and facilities to allow for an orderly transition from CFCs to HCFCs and HFCs. Even so, the industry is already under pressure from the international regulatory community to limit and begin reducing HFCs already used due to concerns regarding global warming potential (GWP). In response to this regulatory pressure, DuPont has, again, significantly increased its spending on the next generation, lower GWP technology.”

WHY

The supply issues relate to the U.S. Environmental Protection Agency’s Clean Air Act which limits the amount of newly produced and imported R-22 available in the United States each year for both OEMs and service work. Using 1998 as a baseline year, production of R-22 was reduced by 35 percent in 2004. In 2010, the reduction will be 65 percent, almost 2/3 less than was being produced 12 years earlier. In 2015, the cutback will be 90 percent and all production will end in 2020.

The demand issue is more complex. “Today’s demand for R-22 is higher than what was expected in 1998 when the phase-out of R-22 started,” according to a statement from Honeywell. “New equipment and an ever-growing installed base are driving market demands for R-22 to historically high levels.”

Adding to the issue is the more rapid than anticipated upgrade to 13-SEER equipment that was the No. 1 topic in the industry in 2006. For many in the industry, the efforts OEMs put into bringing 13 SEER equipment into the market slowed down the conversion of equipment from R-22 to R-410A.

“Demand for R-22 refrigerant has increased over the past two years due to greater OEM requirements to achieve the new 13-SEER energy standards,” said a statement from DuPont to its distributors.

The statement went on to say that a “growing aftermarket requirement for servicing an ever-increasing installed base of R-22 equipment in the marketplace” is adding to the demand.

Yet another factor adding to the cost, according to refrigerant manufacturers, is the cost of raw materials. “Over the past several years, raw material costs have hit record levels and the key raw materials used in R-22 - chlorine, fluorspar, natural gas - remain at historically high cost levels,” said the Honeywell statement.

And manufacturers point to increasing costs of packaging and distribution.

The cost of re-search and development (R&D) has been a factor in refrigerant manufacturers’ budgets for years now in conversions from CFCs to HCFCs to HFCs.

The most recent example of R&D was the joint announcement from Honeywell and DuPont that they would together be working on a refrigerant to replace HFC-134a in automotive air conditioning. The refrigerant is being phased out for use in autos in Europe because of perceived high global warming potential.

HOW

Contractors interviewed were not surprised by the recent price hike and have been adjusting.

“We were notified by each of our suppliers prior to the increase,” said Ken Bodwell of Innovative Service Solutions of Orlando, Fla. “We typically purchase by the pallet and we pre-purchased several pallets before the increase came into effect.”

Factoring rising costs of refrigerant into a job varies, he said. “For installation projects al- ready in-house, we purchased the refrigerants early. (But) most of our business is service-related. For total coverage agreements, we bite the bullet and absorb the increased costs. The other agreements we increase as provided by the contract guideline. On time and material repairs, we’re increasing accordingly.”

Like many contractors, Bodwell said personnel in his company have been trying to educate customers concerning changes in the industry related to both SEER and refrigerants. “We started informing our clients several years ago so they can budget and make intelligent buying decisions. They need to know that commercially we will see new required SEER ratings and refrigerant phaseout.”

Fred Kobie, Kobie Kooling in Ft. Myers, Fla., said, “We are acutely aware of the R-22 price change and have leaned more to a supplier of recycled (refrigerant). The R-22 equipment we install now is the exception and not the rule. R-410A equipment has been out for a while and we have modified our philosophy to stay ahead of the trend.”

He said, “We have projected the cost (of refrigerant) into our pricing and our projections have been very accurate.”

While he said his company has been moving quickly to R-410A, he said he sees “the new construction market still shying away from the conversion.

“There are still stigmas from undereducated mechanics about R-410A that are unfounded and as the deadline (for phase-out of R-22) approaches, more bad decisions are being forced on unknowing consumers.”

Robbie Hill of Hill’s Service in Laurens, S.C., said, “We have to pass the costs along to our customers. Many understand our (refrigerant) prices if they think about gasoline prices.”

He did note in his situation, “The demand for R-22 is far less than five years ago. We have been constantly educating our customers about R-410A.” He said about one-third of his customers are opting for R-410A, which he said is a constantly rising percentage.

Hill also said the “cost of R-22 is catching up with R-410A. So R-410A is not significantly higher priced anymore. This helps people in making choices.”

WHEN

The contractors all felt optimistic about their ability to get supplies of R-22 for aftermarket service work, even if their reasoning for the availability varies.

Bodwell based his thoughts on the pragmatic and the continuing aggressive promotion of R-410A. “If the equipment lasted longer there might be a concern. But typically unitary equipment lasts 15 years.” At the same time, he said, “As quality contractors, we should be informing the consumer about the life-cycle costs and start including long-term recommendations that include refrigerant changes.”

Kobie looked at the supply issue from a somewhat different perspective. “R-22 will be available for decades. I believe the stockpiles of R-22 will outlast the demand.” For better or worse, he said, black market and smuggling of R-22 “will likely continue and be a larger problem.” But, he said, it will put R-22 in the pipeline even though refrigerant manufacturers strongly caution contractors against using such so called ‘off-shore’ refrigerant both because of questions about the purity and the legality of its use.

“Contractors are best protected by associating themselves with reliable, trustworthy suppliers,” said Jay Kestenbaum, president of Refron, a nationwide refrigerant distributor. “Beware of generic branded or unknown labeled material.

“The biggest danger in the remaining years of R-22 use is that with the shortages and rising prices, there is the increased likelihood of suppliers having below-spec, contaminated, or smuggled materials as has occurred during the years of similar CFC shortages and major price increases.”

Publication date: 06/25/2007

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