R32 Refrigerant: Serious Excess Capacity, Is About To Enter a New Development Cycle

At present, most high fructose corn syrup refrigerants face the severe test of excess capacity, especially R32 refrigerant. “Sell at a loss to win sales” is a common tactic used by R32 refrigerant companies in the battle for quotas. Entering 2023, the battle for R32 refrigerant quota is over, and production and consumption are about to be frozen. How to develop in the next stage? Worth the attention of the industry.

1. Market share continues to increase and overcapacity becomes increasingly prominent

After several years of rapid expansion in the home air conditioning industry with its low price advantage, the R32 refrigerant is now firmly in the forefront of home air conditioning refrigerants. However, the industry for R32 air conditioning market proportion statistics are slightly different.

Data provided by Wang Ming, an industry online fluorochemical analyst, shows that in the household air conditioning market in 2022, R22 models will take up less than 1% of the market, R410A models will take up 10% to 20%, and R32 models will take up 80% to 90%. In 2021, those numbers correspond to less than 4 percent, 35 percent and about 60 percent, respectively, he said. The reason why R32 models have such a high proportion is that Gree, Midea, Haier and other mainstream air conditioning manufacturers have completed the switch of R32 refrigerant. At the same time, the proportion of R32 air conditioners in export models is also significantly increased.

In 2022, R22, R32 and R410A will account for more than 2 percent, 65 percent and 30 percent of the home air conditioning market, respectively, according to Gong Wenjun, head of the Blue Sky Market Research Center of Sinohua. “At present, most of the production lines of large air conditioning factories have completed the switching of R32 refrigerant, while those that have not switched are basically small factories,” he analyzed.

From the perspective of supply pattern, according to the data of Baichuan Yinfu, by September 2022, the annual capacity of China R32 is 502,000 tons, and the production capacity is distributed in echelons. The first echelon is Juhua Stock, with an annual capacity of 130,000 tons, accounting for 25.9%. The second tier is enterprises with an annual capacity of more than 40,000 tons, including Dongyue Group, Yonghe Stock, Sanmei Stock and Meilan Chemical, accounting for 12.0%, 8.4%, 8.0% and 8.0%, respectively. The third tier is enterprises with an annual capacity of less than 40,000 tons.

Compared with its strong capacity of more than half a million tonnes a year, the actual output of R32 in 2022 is worrying. According to the data of Hua ‘an Securities, the output of R32 in 2021 is 244,000 tons, and the capacity utilization rate is close to 50%. In 2022, the downstream demand will shrink further. According to this calculation, the capacity utilization rate of R32 refrigerant will not reach 50%. Meilan Chemical related person’s judgment is slightly more optimistic, he thinks R32 refrigerant capacity utilization rate is about 60%.

“Less than 50%” or “60%”, R32 refrigerant serious overcapacity in the industry is an indisputable fact.

2. High fructose Corn Syrup (HFCs) enters a reduction cycle, triggering a “quota war” among enterprises

Analysis of the causes of excess capacity of R32 refrigerant, “quota dispute” is the most direct “fuse”.

On 15 October 2016, the Kigali Amendment was adopted in Kigali, Rwanda, bringing hydrofluorocarbons (HFCs) under the Montreal Protocol. On September 15, 2022, the Kigali Amendment officially entered into force for China. According to the Kigali amendment, A5 countries, represented by China, should freeze the production and consumption of HFCs substances in 2024, cut them by 10 percent in 2029, 30 percent in 2035, 50 percent in 2040 and 80 percent in 2045.

In order to meet the requirements of the Kigali amendment, the Chinese government has introduced a series of policies to support the reduction of R32 and other high fructose corn syrup refrigerants. On September 29, 2021, the List of Controlled Ozone Depleting Substances in China was revised to add 18 HFCS. On October 29, 2021, the Ministry of Ecology and Environment announced that China will officially implement import and export license system for high fructose corn Syrup (HFCs) as of November 1, 2021. Enterprises engaged in the import and export business of High fructose corn syrup shall apply for import and export license from Ministry of Commerce or license-issuing organs entrusted by Ministry of Commerce after the approval of National Import and Export Administration Office of Ozone Layer Depleting Substances in accordance with regulations, and go through customs formalities with the import and export license. On November 9, 2021, the Ministry of Ecology and Environment issued the Guidelines on Deepening Law-based Administration in the Field of Ecological Environment and Continuously Strengthening Law-based Pollution Control. Efforts should be made to revise administrative regulations on the management of ozone-depleting substances, push for the elimination of ozone-depleting substances and the reduction of HFCs in accordance with the law, and push to bring ozone-depleting substances and other illegal acts into the scope of criminal accountability, according to the guideline. In December 2021, the Ministry of Ecology and Environment and other departments issued the Notice on Strictly Controlling the Production and Construction Projects of the First Batch of hydrofluorocarbons (HFCs) chemicals, stipulating that, starting from January 1, 2022, no local government shall build or expand any chemical production facilities (excluding by-product facilities) listed in the annex for controlled purposes such as refrigerants and foaming agents. Except those whose environmental impact statements (forms) have been approved. If the completed chemical production facilities of HFCs listed in the annex need to be rebuilt or constructed at different sites, the original production capacity of HFCs shall not be increased or the product categories of HFCs listed in the annex shall be added. Of the five HFCs listed in the notice, R32 is prominently listed.

In simple terms, high fructose corn syrup refrigerants will be frozen starting in 2024 and then cut. When the reduction cycle begins, each country will allocate production and sales quotas based on the market share of each company from 2020 to 2022. This is exactly the reason why companies have been frantically expanding R32 refrigerant capacity in the past few years, in order to get more production and sales quotas before the time limit.

3. Say goodbye to irrational competition and enter a new stage of development

Everything has its turn. Entering 2023, the quota war is over. R32 refrigerant enterprises must bid farewell to the irrational competition mode before and return to the essence of commodity economy — profit, price rise is inevitable.

According to the data of Refrigeration Express, the price of R32 refrigerant has risen from 13,000 yuan/ton to 14,000 yuan/ton in just over two months in the beginning of 2023. Moreover, for R32 refrigerant afternoon, the industry is still bullish.

For the prospect of R32 refrigerant in the household air conditioning industry, the person in charge of Dongyue Group believes: “In a short time, the situation of excess capacity of R32 refrigerant is still difficult to change. After all, there has been too much expansion of R32 refrigerant capacity, while the demand for R32 in home air conditioning is declining.”

In addition, according to the updated data from the latest report of the United Nations Intergovernmental Panel on Climate Change (IPCC), the GWP value of the R32 refrigerant has been increased to 771 from the previous 675, which is higher than the EU’s upcoming 750 GWP limit for split air conditioning refrigerant, which will come into effect on January 1, 2025. Even if EU F-gas regulations do not adopt the IPCC’s new data, R32 refrigerant will only be allowed to be used in the EU until 2027, at which point air-conditioners filled with R32 refrigerant may not be able to be exported to the EU market.

From the perspective of the long-term development of the household air conditioning industry, an official of the China Household Electrical Appliances Association said: “R32 refrigerant is a controlled substance under the Kigali Amendment, which has been very clear. In recent years, the industry has switched to R32 air conditioners on a large scale, which brings greater challenges to the future HFCs material reduction control in China’s household air conditioning industry, and the industrial chain may face the problem of secondary conversion, which is not conducive to the long-term development of the industry.”

Article source: Science and technology industry chain