The Zhitong Finance App learned that Changjiang Securities released a research report saying that under the restrictions of policies to reduce carbon emissions, switching refrigerants to four generations will be a development trend; promotion of hydrocarbon refrigerants is limited due to the problems of expensive compressor replacement and high flammability and explosive value. HFOS, mainly the R1234yf, has now partially replaced the R134a in European and American models, and its mixed quality is expected to be promoted in various fields such as household and commercial air conditioning. However, R1234yf currently has many production and application patents monopolized by overseas giants, making it difficult for domestic companies to break through. The relevant patents are expected to expire one after another after 2024. At the same time, the R1234yf has limited room for cost reduction and is expensive. In 2024, the price of third-generation refrigerants began to start on the right side due to quota restrictions, but compared to the current price of R1234yf, the price of third-generation refrigerants is still low, so there is huge room for the price increase for third-generation refrigerants.

Related targets: Juhua Co., Ltd. (600160.SH), Sanmei Co., Ltd. (603379.SH), Dongyue Group (00189), Yonghe Co., Ltd. (605020.SH), and Haohua Technology () (to acquire Sinochem Blue Sky). 600378.SH

The main views of Changjiang Securities are as follows:

Under global law, fourth-generation refrigerants are a development trend

The global refrigerant development trend is to reduce its ozone hole and greenhouse effect, and various allied countries have successively signed the Montreal Protocol and the “Kigali Amendment” implementation regulations. Driven by policy, global refrigerants have gradually evolved from the first generation to the fourth generation. Developed countries have completed cutting back on second-generation refrigerants and are continuing to cut third-generation refrigerants. China is a developing country. It is continuing to cut second-generation refrigerants and officially freeze production quotas for third-generation refrigerants in 2024. The future global trend will be to develop fourth-generation refrigerants with low GWP values.

Different fields of application, different low GWP alternatives

Fourth-generation refrigerants currently have three major new working medium replacement routes with application value: 1) developing unsaturated fluoroolefin refrigerants; 2) developing hybrid refrigerant materials; 3) using natural refrigerants. Depending on the application fields such as household air conditioning, commercial refrigeration, automotive use, cold chain, refrigerators, foaming, etc., the refrigeration effect, pressure resistance, and volume volume will also vary, so the choice of refrigerant is often different. The monomer HFOS refrigerants R1234yf, R1234ze, etc. can replace the automotive refrigerant R134a. They have already been widely used in Europe and the US, and mixing solutions for R1234yf and third-generation refrigerants are also being studied and promoted, and are expected to be used in household air conditioners and commercial refrigeration. Due to their high flammability/expensive compressors, hydrocarbon refrigerants are expensive. Apart from being used in refrigerators with good sealing properties, it is difficult to promote them in other fields.

HfOS has a number of production and application patents, limiting promotion

Currently, the most important mature variety of fourth-generation refrigerant is R1234yf, which has various production routes. The international fluorine chemical giant has developed a complete patent layout for fourth-generation refrigerants, forming an extremely high patent barrier, including production patents and application patents. Honeywell and DuPont began applying for R1234yf patents in 2004, which means that the earliest R1234yf production patent expires in 2024.

Compared to production patents, application patents (patents relating to compositions and their uses are usually called application patents) involve not only lawsuits by foreign companies against other manufacturers, but also lawsuits against customers. HFos application patents arranged by overseas giants are concentrated in 2004-2010, so HFos application patents will expire one after another in 2024-2030. Currently, the layout of Chinese enterprises in HFOs is restricted by patents, and most of them do OEM work for overseas giants.

HFos is expensive, and there is little room for cost reduction

The price of R1234YF is more expensive. In 2020-2023, the European R1234YF price fluctuated between 60-70 euros/kg (with 14 companies as a sample), 2-4 times that of the European R32. Due to raw materials and technical routes, there is limited room for R1234yf's theoretical cost reduction. According to NSA and our further estimates, the long-term full cost of R1234yf is estimated to be 85,000-140,000 yuan/ton.

Risk warning: Production routes may be further changed; policies may change; demand falls short of expectations; risk of passing new PFAs regulations.