The Zhitong Finance App learned that Huachuang Securities released a research report saying that refrigerants are expected to enter a period of steady upward trend in performance. The refrigerant sector stock price in 2023 is mainly a game of policy expectations. With the implementation of the policy, third-generation refrigerants are expected to enter the redemption period for product prices and stock prices. As of March 31, 2024, the gross margins of third-generation refrigerants R32, R125, R134a, and R143a were 50.4%, 56.9%, 47.1%, and 65.1%, respectively. Looking ahead, downstream air conditioning production will continue to be strong in April. May-June will enter the peak season for the after-sales fluoridation market, and prices and profits are expected to rise steadily.
Furthermore, according to the quota usage results currently monitored by Huachuang Securities, the January-March R32 and R125 quotas were generally overused, which means that quotas in the second half of the year may face a tight situation. Judging that the pattern of price changes during the off-peak season may change. If quotas are used too quickly during the peak season, prices may rise further due to insufficient quotas during the off-season.
The main views of Huacheng Securities are as follows:
Major refrigerant manufacturers rose strongly in March, and R32 quotas continued to be overused
Since the release of the third-generation refrigerant quota details in January 2024, a tight supply situation in the domestic demand market has gradually become apparent, and refrigerant companies have gradually dominated the pricing power of the industry. March officially entered the peak season. The overall price of third-generation refrigerants showed that large manufacturers raised prices strongly, small manufacturers quickly followed suit, and mainstream prices in the market continued to rise.
As of March 31, the mainstream market prices for third-generation refrigerants R32, R125, R134a, and R143a were 2.9, 4.4, 3.2, and 60,000 yuan/ton respectively, up 18.4%/4.8%/1.6%/5.3% from early March. Looking at the industry quota usage rate, for the week ending 3/24-3/29, R32/R125/R134a's quota usage rate was 109%/98%/74%, respectively.
In terms of production-side inventory, the inventory days for R32/R125/R134a were 8.73/8.78/8.27 days, respectively, at the 61%/52%/58% quantile values since 2018. Inventory has continued to be removed since February, and has now been reduced to the historical central level.
In summary, the January-February market phenomenon was: manufacturers increased their horsepower to fully utilize their quotas, while prices continued to reach new highs. Huachuang Securities analyzed that the reason for this is that the peak downstream season in January is still ahead, and the enterprise side is increasing horsepower production and accumulating inventory indicates its sales mentality; as the peak season from February to March approaches, the enterprise side overuses quotas, downstream orders are gradually filling up, and production-side inventories continue to be removed, indicating that demand for refrigerants is currently strong.
Air conditioning production increased month-on-month in April, and terminal exports increased sharply year-on-year in January-February
The central government introduced a durable goods trade-in policy at the end of February, which is expected to effectively stimulate consumption of household appliances and automobiles. In early March, Shanghai and other places also responded positively to introducing consumer promotion policies for automobiles and green household appliances. New rounds of consumption stimulus policies are frequent, bringing room for incremental demand for refrigerants. Considering that old air conditioners mostly use second-generation refrigerants, and new air conditioners basically use third-generation refrigerants, it is expected to drive changes in the refrigerant structure.
In addition, according to industry online data, household air conditioners are scheduled to be produced in April, +22.7% compared to the same period last year. Of these, the domestic market is expected to produce 1.28 million units, +20.9% compared to the same period last year, and 9.38 million units in the export market, which is +28.3% compared to the same period last year. The April production schedule continued to grow at a high year-on-year rate and month-on-month, which strongly supports refrigerant demand.
In terms of exports, terminal exports increased sharply year-on-year in January-February, with significant growth rates in Asia, Africa, and Latin America. In terms of terminal exports, according to industry online data, the cumulative export volume of household air conditioners from January to February 2024 was 15.788 million units, an increase of 21.1% over the previous year. Looking at exporting countries, the export performance of Asia, Africa, and Latin America is impressive. Among them, 714,000 units were exported to Brazil, up 250.9% year on year, 614,000 units were exported to Indonesia, up 148.9% year on year, and 512,000 units were exported to Spain, up 97.4% year on year.
The price increase flexibility of this round of third-generation refrigeration is expected to far exceed that of second-generation refrigerants
Huachuang Securities pointed out that the quota for second-generation refrigerants was locked for 09-10, which coincided with the domestic policy of sending home appliances to the countryside, making the second-generation refrigerant quota base high; while the third-generation refrigerant quota lock period was 20-22 years, affected by the global pandemic and macroeconomy, the quota base was low. When the quota production system was implemented for second-generation refrigerants, third-generation refrigerant technology was mature and overseas patents had expired, and third-generation refrigerants successfully replaced the portion cut by second-generation refrigerants; however, since the current price of fourth-generation refrigerants is much higher than that of third-generation refrigerants, even when measured at a cost of 60,000 to 70,000 yuan/ton of fourth-generation refrigerants, it is far higher than the current sales price of third-generation refrigerants.
Furthermore, the earliest patent for the production of fourth-generation refrigerants has not yet expired. Equipment with four-generation refrigerants is completely different from the third generation, and the replacement cycle of equipment is generally 8-10 years, so it is expected that the replacement rate of the fourth generation to the third generation will be slower than the replacement rate of the third generation to the second generation. The price increase of second-generation refrigerants reached 50% within 1 year after the 2013 quota was implemented. The increase in this round of third-generation refrigerants is expected to far exceed the previous market for second-generation refrigerants.
Recommended attention: Juhua (600160.SH) (refrigerant leader, with industry pricing power, 2024 third-generation quota of 252,100 tons); Sanmei (603379.SH) (2024 third-generation quota of 117,000 tons); Yonghe (605020.SH) (2024 third-generation quota of 55,200 tons); Dongyue Group (00189) (second-generation refrigerant Long1, second-generation refrigerant's price increase flexibility is underestimated; 2024 third-generation quota is 76,400 tons); Haohua Technology () (proposed) 600378.SH The acquired wholly-owned subsidiary Sinochem Blue Sky's third-generation quota in 2024 was 106,600 tons); Dongyangguang (600673.SH) (85% holding subsidiary Ruyuan Dongyangguang's third-generation quota in 2024 was 48,000 tons).
Risk warning: Downstream air conditioning and refrigerator vehicle production schedules fall short of expectations; downstream boycotts refrigerant price increases; 65% quota for second-generation HCFCs was issued ahead of schedule, etc.