COVER STORY
Up and away:
refrigerant prices soar
Since mid 2010, refrigerant prices have skyrocketed – the result of a perfect storm of increased
demand, limited supply, high raw material costs and the phase-out of R22. Although volatile,
Sean McGowan reports that the market may be softening.
Arkema’s Changshu production facility in China.
Source: Arkema, Antoine Icard.
The Montreal Protocol has been ratified by 187
signatories since it was first introduced in 1987 as
a way of protecting the ozone layer. The protocol
stipulates phasing out the production of ozonedepleting substances, a number of refrigerants
included.
enormous stress on the supply of R410A, R22’s new
generation, non-ozone-depleting replacement.
Perhaps the most common refrigerant to have
been recently affected by the treaty is HCFC-22,
commonly known as R22.
R410A, along with the other 4 and 5 Series blend of
refrigerants, are dependent on R125, a fluorocarbon
essential in the manufacture of this range of nonozone-depleting HFC refrigerants.
Ironically, it was once used as a replacement for the
highly ozone-depleting CFC-11 and CFC-12 due to
its comparatively low-ozone-depleting potential.
However, it is now suffering the same fate as its
predecessors, as it is phased out across the globe,
country by country.
The phase-out is on in earnest in the US, with the
country’s EPA ruling a reduction in the production
and importation of R22 by over 150 million pounds
last year, and 10-13 per cent per year through to 2014.
The European F-Gas regulation has also now
banned the use of virgin R22 for new equipment
and service in Europe.
Naturally, this has resulted in a significant shortfall
compared to the market demand and placed
And herein lies the first factor behind the refrigerant
price hikes we’ve seen recently: supply and demand.
But unfortunately, the news only gets worse.
And you guessed it – there is a global shortage of
R125 too. It is indeed the perfect storm.
According to Kylie Farrelley, product manager for
global refrigerant manufacturer Arkema in Australia,
supply and demand is just part of the story.
Raw material shortages (most notably the mineral
fluorspar used in the production of HFCs), the
volatility of commodity prices and the set-up of
the world’s largest manufacturing plants have all
impacted on refrigerant prices.
“With the raw materials, there have been some
regulation changes in mining in China, including
government restrictions and quotas,” explains
Farrelley.
“Also over the last 12 months we’ve seen adverse
weather and the earthquake in Japan, which has
made it difficult to either mine or to transport the
raw materials.”
Another factor she points to is that most of the
world’s refrigerant plants are multi-purpose
and can produce other products including PCE
(perchloroethylene) used as a dry cleaning solvent,
PTFE (polytetrafluoroethylene) commonly known as
Teflon, and a host of other products.
“If the price of PCE or PTFE is greater than the market
price for R125, then they produce whatever they can
to make the most of the plant,” Farrelley says.
Other global refrigerant manufacturers also operate
swing plants that are able to make either R125 or R134a.
As global demand for R134a has increased as a
result of major conversion from HCFCs in insulating
foams across the globe, again in response to
obligations under the Montreal Protocol, further
pressure has been placed on the existing capacity
of these plants.
“There are a lot of these influencing factors,
rather than just one thing, which are impacting
on refrigerant pricing,” Farrelley says.
www.hvacrnation.com.au n August 2011 n HVAC&R Nation n 19
COVER STORY
Arkema’s Changshu production facility in China. Source: Arkema, Antoine Icard.
While acknowledging the significance of the price
increases, Farrelley says Australia has been lucky
to avoid the shortages that have plagued other
countries, including limits on allocations and
supplier decisions on who would receive supply.
“Fortunately it didn’t come to that in Australia,” she
says. “But it was a real threat.”
Closer to home
Although the Australian HVAC&R industry escaped
the worst of the global supply issues, we have not
been immune to significant price hikes.
Local wholesalers have had their suppliers force
large price increases on them in response to the
global situation, and these have naturally flowed on
to their customers.
“We saw increases come through from our supplier
network towards the end of last year and early this
year, but there has been a patch of stability in recent
times,” explains Gavin Tory, director of marketing –
Australia and New Zealand, for Heatcraft.
“The best way to describe it is that it’s volatile but
there are some signs of softening.”
A number of refrigerants have seen incremental
price increases of around 10 per cent. However,
others like R404A have risen substantially more. The
price of R134a, for instance, has increased by up to
80 per cent in the last six months.
Supply, too, has become tight and challenging
to manage.
increase competition in the marketplace
and place downward pressure on prices.
“It got to the stage, at the start of this year, where
things were looking very tight in the supply pipeline
from Asia,” Tory says. “Thankfully we didn’t get to
the point where the market was short on product.”
However, this is likely to be countered by the
limitation on imports of R22 from next year, which
may put even greater pressure on supply in Australia.
“We work very closely with our suppliers to ensure
we’ve got good forecasts in place and understand
where the demand is going to be and cater
accordingly. But it has been more challenging than
has historically been the case.”
Tory says the evolving landscape of refrigerants will
create further challenges to the supply chain in the
future, particularly as demand for new refrigerant
types grows.
Already moves to new blends overseas are
placing extra uncertainty on the market, with new
technology refrigerants like HFO (hydrofluoro olefin)
1234yf now being legislated in Europe for use in
vehicle air conditioning, replacing the use of R134a.
“This is just starting to flow through, and there is still
growing demand for the R134a. But you’ve got this
threat now of other types of refrigerants that will
supercede R134a.
“It means companies aren’t willing to invest in further
capacity because they’re not quite sure if there’s
going to be a long-term demand for the product.”
The good news is that patents on some of the 4
Series refrigerants are soon to end, which will likely
20 n HVAC&R Nation n August 2011 n www.hvacrnation.com.au
It is for this reason that Heatcraft and its competitors
are actively informing customers about the phaseout of R22 and the alternatives available to manage
this change.
Heatcraft last month completed a series of
roadshows around Australia and New Zealand
where customers were advised of the trends in the
marketplace, including the phase-out of R22 and
future developments such as the implications of
a carbon tax and a quota on HFCs, which is being
discussed globally.
In the short term, however, the advice from both
Heatcraft and Arkema is to remain in close contact with
your supplier; to plan ahead, particularly for large jobs;
and take heed of the information being made available.
“It’s always good to speak to your supplier,” suggests
Farrelley. “But the only advice I could offer is to
only buy what you need at the moment and not
stockpile.”
With signs that price relief may start to flow
through from August, perhaps there is light at the
end of the tunnel; however, with so many factors at
play the situation is likely to remain volatile for some
time to come. n