As we reported last month, China's Ministry of Environmental Protection recently released a list of thirteen substitute refrigerants, detergents and foaming agents it plans to support during China’s transition away from HCFCs. The list featured ten natural substances and only one HFC.
The First Catalogue of Recommended Substitutes for HCFCs does not include any practical policy measures and is merely supposed to serve as a general statement of intent by the government, but more substantial reforms are sure to follow.
CCM spoke to a number of insiders in China’s air conditioning and refrigerant industries in the wake of the publication of the Catalogue to get a sense of the mood in the two industries and how companies plan to move forward.
Figure 1: Recommended substitutes for HCFCs listed by China’s Ministry of Environmental Protection
The start of something big
All the insiders CCM spoke to are under no illusions as to the Catalogue’s significance. All agreed that the Catalogue is almost certainly the prelude to a government campaign to promote natural refrigerants at the expense of HFCs.
As with China’s previous drive to support R290 air conditioners, policy measures that are likely to follow include subsidies to help producers overhaul their production lines, price subsidies for products containing natural refrigerants and support in promoting these products.
However, there was a general consensus that the HFC industry is unlikely to be affected for at least the next 1-2 years as it will take time for these policies to be implemented.
Air conditioner manufacturers: playing it by ear
The attitude among air conditioner manufacturers is generally one of reluctant compliance. The government has been promoting R290 in recent years, but Chinese consumers have shown little enthusiasm for paying extra for these more environmentally-friendly products. As a result, manufacturers have little incentive to invest in expanding production of R290 without further government incentives.
“We officially launched R290 air conditioners in H1 2015, as the government has offered to support R290 as a substitute for difluorochloromethane (HCFC-22) in household air conditioners since 2011. Many supporting policies have been issued, covering production, application, promotion and sale,” said an engineer from Gree Electric Appliances.
“But we have kept production small because the HCFC-22 and HFC-410a (a 1:1 mixture of difluoromethane – HFC-32 and pentafluoroethane – HFC-125) air conditioners still play a vital role in the market, with 80%+ sales in total, whilst the rest is partially claimed by HFC-32 air conditioners. R290 air conditioners still account for a small share.”
However, Gree Electrical Appliances received its first order for R290 air conditioners from a public institution in June – an order from Shenzhen University for 243 units. If the company starts to receive more of these government contracts, it may be tempted to expand production further.
Fluorine-enriched refrigerant producers: looking to make hay while the sun shines
Chinese producers of HCFC and HFC refrigerants recognize that the tide is beginning to turn away from them, but most of them remain bullish about their prospects for the immediate future.
A representative of Zhejiang Sanmei Chemicals underlined this point by pointing out that his company’s sales of HFC-134a aerosol cans (net weight: 200-250 g/can) during the first half of 2015 were up over 70% year on year. Zhejiang Sanmei Chemicals is still the market leader in vehicle air conditioner refrigerants and it expects HFCs will continue to dominate this market for some time to come.
Sinochem Lantian, a subsidiary of Sinochem Group that specializes in fluorine chemicals, also expects sales of HFCs to continue growing unless practical policies are introduced to promote natural refrigerants:
“HFCs, mainstream substitutes for HCFCs, have already been applied widely”, said a sales manager from the company. “Now the vehicle air conditioning segment, as a whole, has adopted 1,1,1,2-tetrafluoroethane (HFC-134a); in the domestic air conditioning sector, the proportion of HFC-410a air conditioners has been increasing, now equal to that of traditional HCFC-22 ones”.
The sales manager attributed the government’s support for natural refrigerants to the EU’s new F-Gas Regulations, which will gradually phase out the use of HFCs over the next fifteen years. However, China has not yet introduced similar restrictions on the HFC industry, and natural refrigerants will struggle to compete until it does so.
However, despite the brave face the industry is putting on, there is sure to be widespread concern about the long-term future of HFCs in China.
Many manufacturers are already struggling due to the severe overcapacity in the industry, with operating rates among producers of HFC-134a, HFC-410a, HFC-32 and HFC-125, all under 60%. Prices have also fallen dramatically as a result – in the case of HFC-134a, prices have plummeted 300% from 2010-2012 levels.
The only route out of this overcapacity crisis is through increasing demand for HFCs, but the government’s evangelizing of natural refrigerants threatens to make this impossible.
For now, it is a case of ‘keep calm and carry on’ for both air conditioner and refrigerant companies, but both groups will be keeping a close eye on the government as they wait for its next move.
CCM will continue to follow this story closely, and we will post further updates as the situation develops in China Fluoride Materials Monthly Report.