A transformation from the second generation to the third generation
The fluorine-containing refrigerants market has witnessed four generations of technological innovation on the heels of the improving environmental protection laws and regulations, as shown in Table 1. China is transforming from the second generation of refrigerant - HCFC to the third generation of refrigerant - HFC. And the core domestic refrigerants consist of R22, R32, R125 and R134a.
R22, i.e. difluorochloromethane, is an odorless, colorless, nontoxic, non-corrosive and nonflammable compressed gas. It is generally used as a refrigerant for industrial, commercial and household air conditioning systems, or as a raw material for the production of a variety of fluoropolymer compounds. R22 is one of the ozone depleting substances (ODS). According to the Montreal Protocol on ODS and ODS Management Act, China has been gradually reducing the production and consumption of hydrochlorofluorocarbons and started to carry out quota production in 2013. Figure 1 shows the production and allocated quotas of R22 in recent years.
In 2019, a total of 11 producers in China applied for ODS-route R22 production quota, with an aggravated volume of 266 821 tons, down by 2.7% year on year. The figure will continue to decrease in 2020.
R32, R125 and R134a are all the third-generation fluorine-containing refrigerants - HFC. R32, i.e. difluoromethane, is mainly used as indoor air conditioning refrigerants, or used in the production of mixed refrigerants to replace R22; R125, i.e. pentafluoroethane, with zero global warming potential (ODP), is mainly used in the production of mixed refrigerants to replace R22; R134a, i.e. tetrafluoroethane, is mainly used as refrigerants for automobile air conditioning systems, and also used as refrigerants for refrigerators and central air conditioning as well as industrial and commercial refrigerants. Figure 2 shows the prices of the four refrigerants in 2019.
There are many HFC producers in China. Table 2 shows the leading HFC producers in China.
A key year to fight for quotas
The capacity of fluorine-containing refrigerants in China has been growing rapidly in recent years. The new capacities of fluorine-containing refrigerants in 2019 were shown in Table 3, and HFC capacities contributed the largest portion. The capacities of R32 increased by 80 kt/a, those of R125 increased by 60 kt/a, and those of R134a rose by 30 kt/a.
Year 2019 is critical for HFC refrigerants. Based on the case of the second generation of refrigerants, when the quota system is implemented, the prices of refrigerants increase significantly because of the shortage of supply. According to the Kigali Amendment agreed at the 28th meeting of the parties of the Montreal Protocol in October 2016, China will block HFC capacities from 2024, while 2020-2022 will be the benchmark period. In the context, some refrigerant producers speeded up the construction of HFC facilities to ensure that they are ready for the production before the benchmark period and the competition for more quotas later.
Declining sales volumes of refrigerants used in automobile air conditioning
The demand for fluorine refrigerants is greatly affected by downstream air conditioner and automobile industries. Among the products, R22, R32 and R125 are mainly used in the air conditioning industry. In March 2019, the output of air conditioners reached a peak of the whole year, at 24.069 million units. Later, the output gradually decreased until in September 2019 when the output recovered slightly.
R134a is mainly used in the production of automobile air conditioning refrigerant. In 2019, affected by headwinds such as the slowing macroeconomic growth, the lower consumer demand and the de-stocking strategy of China V vehicles, the production and sales volume of automobile decreased. Until July, the automobile production recovered, which perked up the R134a demand.
China is an exporter of fluorine-containing refrigerants, while its import volume is tiny. Comparing the export volume of refrigerants in China in 2019 and 2018, we can see that:
(1) The export volume of R22 was stable-to-higher, as the production cutbacks of R22 was accelerated in developed countries. The production cutbacks of R22 in developed countries had been earlier than in developing countries, but the elimination of relevant facilities took a long time.
(2) The export volume of R32 increased significantly, while that of R125 decreased sharply. R125 is mainly used to prepare R410A refrigerant mixture. The decrease in the export volume indicated that the output of air conditioners using R410A as refrigerants weakened, while that using R32 as refrigerants strengthened.
(3) R134a is mainly used in the automobile air conditioning industry. The export volume increased in 2019, as the demand for R134a from the global automobile industry strengthened.