HFC quotas have been determined. Domestic use quotas for some varieties are significantly lower, and supply is expected to be tight in the domestic market.
The Zhitong Finance App learned that Guojin Securities released a research report saying that under policy drive, the refrigerant industry will be limited, changes in the supply and demand pattern have a basis for product price increases, and the industry has been at a low profit level for a long time. Companies in the industry have the drive to improve profits. Third-generation refrigerants are expected to enter a stage of continuous price increases. It is recommended to focus on leading refrigerant manufacturers Juhua Co., Ltd. (600160.SH), Sanmei (603379.SH), Yonghe Co., Ltd. (605020.SH), Haohua Technology (), Dongyangguang (600378.SH 600673.SH) etc.
Incident: The Ministry of Ecology and Environment finalized the “2024 Ozone Depleting Substances Production and Use Quota Issuance” and “2024 HFC Production and Import Quota Issuance” after receiving quota applications from many companies in the industry, which means that domestic quotas for second-generation refrigerants and third-generation refrigerants in 2024 have been finalized.
Guojin Securities's views are as follows:
HFC quotas have been determined. Domestic use quotas for some varieties are significantly lower, and supply is expected to be tight in the domestic market.
According to the quota issued by the Ministry of Ecology and Environment, the overall quota is 745,600 tons, but the domestic use quota accounts for about 46%, which is less than half of the total supply, accounting for a relatively small share. Judging from the benchmark period of the past 3 years, in 2020 and 2021, due to the fact that exports of different third-generation refrigerants to the US and other places levied double anti-tax rates one after another, there was a situation where exports of some products were concentrated. Therefore, compared to actual demand from overseas, the share of the average export volume for 3 years during the quota period was slightly higher, so the share of domestic quotas was lower than normal, causing domestic supply to be slightly tight. Looking at various segments, the proportion of HFC-134a, HFC-125, HFC-143a, and HFC-152a for domestic use is significantly lower among large-scale HFCs, at 38%, 36%, 25%, and 24%, respectively. As a result, when domestic supply is insufficient, the domestic supply and demand structure for third-generation refrigerants reverses, and the industry has an industry foundation for improving price profits.
The market concentration of third-generation refrigerants has been greatly increased, and when combined with the integration of resources with quotas, synergy is expected to improve markedly.
Unlike the market distribution pattern of nominal production capacity, the actual supply concentration of third-generation refrigerants is clearly high. After the past 3 years of industry competition for quotas, small-scale enterprises in the industry have no financial strength to compete at low prices for a long time. According to the current quota allocation situation, 70 companies have submitted quota applications, and only 34 companies have been granted allocation after final approval. Among the 34 companies, there is also a marked increase in market concentration. Among the mainstream large-scale third-generation refrigerants, the market concentration has increased markedly. Among the mainstream third-generation refrigerants, the market concentration has increased markedly. Among the mainstream third-generation refrigerants, the market concentration has increased markedly. Among the mainstream third-generation refrigerants, the market concentration has increased markedly. cR3 They all exceeded 2/3, and CR5 both exceeded 80%. Among them, the market concentration of R134a and R143a was even more obvious. The top 5 R134a companies accounted for more than 90%, and only 4 companies (or related companies) in the R143a industry received quotas. The sharp increase in concentration has effectively helped the refrigerant bargain power in the industrial chain. Combined with the fact that companies in the industry are not pressured to compete for quotas and hope to be rewarded for their early efforts, the industry pattern is conducive to rising product prices. Judging from the distribution of quotas, Juhua shares lead the industry in terms of share. Sanmei, Dongyue, Sinochem Lantian, and Yonghe have comparative advantages in R125, R32, R134a, and R143a respectively, ranking second in the market share of various types, and along with Juhua's acquisition of Feiyuan, the concentration of the industry will further increase.
The quota for second-generation refrigerants has changed little, the quotas for leading companies have not changed, and it is expected that the industry will maintain relatively stable operation at every stage of regulation.
Judging from the national quota for ozone-depleting substances, there was a slight reduction in the R22 quota, but judging from the structure of the cuts, the quotas for large enterprises at the top were basically unchanged. The cuts were mainly concentrated in the hands of small suppliers at the bottom. The overall quota share fell by about 1%, and the overall impact was relatively small.
Risk warning: risk of policy changes; risk of demand falling short of expectations; risk of sharp fluctuations in raw material prices; risk of trade policy changes.