CCM: China’s R32: market recovery devastated by increasing production capacity in 2015 10-18-2016

Summary: In late June 2015, Zhonglin Chemical (in Sichuan Province) announced to launch a R32 refrigerant project. In the light of the continuously increasing production capacity all around the country, CCM expects no recovery in the R32 market, along with fiercer price competition and long-lasting low price.


On 20 June, 2015, Sichuan Jiangyou Zhonglin Chemical Co., Ltd. (Zhonglin Chemical) announced the plan to launch a difluoromethane (R32) refrigerant project in the 4th quarter, 2 production lines included to total 3,000 t/a. Now the project is under environmental impact assessment.

According to CCM research, the production capacities that are under construction in Shandong and Qinghai provinces are combined to reach 20,000 t/a, whilst that in regions like Jiangxi and Fujian provinces will also increase, however just under planning.

Ex-works price of difluoromethane in China, June 2014–May 2015

Source: CCM 

The move to expand the R32 production capacity can be attributed to the increasing downstream demand and the government support.


In recent years, the Chinese government, in an attempt to protect the environment, has been strongly recommending and supporting the application of propane (R290) as the 1st substitute for difluorochloromethane (R22). However, R290, due to the characteristics of flammability and explosibility, is strictly restricted in charge volume and is now only applied in household split-type air conditioner and small-scale refrigerating equipment, unable to satisfy the demand from other fields, such as industrial and commercial air conditioner and medium- and large-size refrigerating unit.

At this moment, R32 gets in the market. Inferior to R290, its advantage in environmental protection is still far beyond that of other substitutes for R22, such as R410a (a 1:1 mixture of R32 and pentafluoroethane – R125). Moreover, the limit on the charge volume of R32 is relatively loose, as it is not too easy to flame. This enables it to be used in the aforementioned fields where R290 is not applicable.


Hence in 2015, the scaled application of R32 in China has been accelerated. Many compressor (core component in air conditioner) enterprises announced the success in the R&D and mass production of R32 compressor. According to statistics, the output of R32 compressor increased by 50%+ YoY during January-May. Enterprises like Gree Electric Appliances, Inc. of Zhuhai, Midea Group and Haier Group have launched R32 air conditioners onto the market in succession.


Also in June, the Chinese government solicited public opinions on the First Catalogue of Recommended Substitutes for HCFCs (HCFC stands for hydrochloroflurocarbon), in which R32 is listed as the only fluorine-enriched refrigerant. This manifests that the government will encourage the promotion and application of R32.


However, the R32 industry in fact is trapped in relatively severe overcapacity. CCM believes that the continuously increasing production capacity will nullify the drive offered by the strengthened downstream demand and the guidance and support provided by the government.


To date the domestic production capacity of R32 has totalled 220,000 t/a, excluding those under construction. In recent years, the average operating rate of R32 enterprises has stayed at around 50%. Specifically in 2014, the full-year operating rate averaged only about 45%, suggesting a serious overcapacity in the industry. Impacted by this, the R32 market has entered the downward trend since H2 2014. In May 2015, the price declined by 7.15% over that in June 2014, causing a narrowed profit margin.


Statistics has it that the downstream consumption of R32 in 2014 summed up to about 100,000 tonnes. In 2015, the demand will increase to around 120,000 tonnes, however only about 54% of the total capacity.


To suppose that R32 will play a full role in replacing R22 every year during the elimination and that the R32 capacity will not further increase and stay at the current level, only from 2020 can oversupply be eased.


So, the production capacities that have been newly established or are to be established later, may completely cancel out the downstream demand increased through eliminating R22, and will even intensify the overcapacity. Then, the R32 industry will not rebound, along with fiercer price competition and long-lasting low price.

About CCM:

CCM is the leading market intelligence provider for China’s agriculture, chemicals, food & ingredients and life science markets. Founded in 2001, CCM offers a range of data and content solutions, from price and trade data to industry newsletters and customized market research reports. Our clients include Monsanto, DuPont, Shell, Bayer, and Syngenta. CCM is a brand of Kcomber Inc.


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