The Buy and Hold Refrigerant Strategy

This is something that I was seeing a lot of seven to eight years ago. As most of you know back in 2010 R-22 refrigerant was banned from being used in new air conditioners. In 2015 the import and manufacturing allocations of R-22 were cut as well and now in the upcoming year 2020 the allocations will be cut again. The goal here is to slowly phase-out one of the most widely popular refrigerants on the market.

Everyone knew this was coming. It had been in the plan for at least a decade as a result of the Montreal Protocol. A few businesses with some foresight bought up a few extra cylinders of R-22 before the 2010 date hit. They had three or four cylinders sitting in storage at that lower cost so when the cost did rise post 2010 they wouldn’t be affected for a while. It was a smart business move and saved you from having extra expense down the road.

There were some guys out there however who took it to another level. Instead of buying five or ten extra cylinders and sitting on them they bought pallets. Yes, that’s right pallets of R-22. I haven’t talked to him in a while but there was a distributor that I used to deal with out of Minnesota that had bought five pallets of R-22 before the change hit. There are forty cylinders on a pallet so that is two hundred R-22 cylinders sitting in storage. At the time the cylinders would have been around two-hundred and fifty to three-hundred dollars each. That’s around a fifty-thousand dollar investment. That is a hell of a cost to absorb but there’s a strategy behind this.

Everyone knew that R-22’s price would go up after the initial phase-out. Everyone knew that the price would go even higher after the 2015 allocation shrink. What this guy did out of Minnesota was take a gamble on just how much the price would go up. Now, like I said, I haven’t talked to him in years but if he sat on his stock over the past six or seven years and then went to sell it all today he would make a killing. What is the price of R-22 today for a cylinder? It’s about six-hundred dollars.

Let’s say he sells all two-hundred cylinders at six-hundred. That’s a one-hundred and twenty-thousand sale resulting in a seventy-thousand profit windfall. Now any of you who run a business know that that seventy-thousand wasn’t all profit. You had to factor in the up-front capital. You had to factor in the cost of storage and the space that that product was taking up. But, if you can take the initial hit of the investment and have the room to store it in a controlled environment it was a great investment. I am absolutely positive there were others out there who bought ten, fifteen, or even a whole trailer-load of twenty pallets of R-22 refrigerant before the phase-out began. And can you imagine if the price had climbed to a thousand dollars a cylinder like it did on R-12? Talk about profits.

The investment opportunity on R-22 is most likely over. The price has gone up so much and the demand is starting to decline. Most R-22 units are now at least seven years old and some are already past the decade mark. These units will start to be replaced over the next year or two. Anyone who is still holding on to a large amount of R-22 may be struggling to sell it. The sweet spot was about a year or two ago when the machines were aging but weren’t all being replaced yet.

HFCs

So, now that the R-22 craze is over the question on everyone’s mind today is when will the price on HFC’s begin to climb and climb? For the most part prices on HFCs have been pretty stable. Sure there have been some seasons where they rise to over two-hundred a cylinder but when the winter comes and demand dies down they usually level out back into the one-hundreds. I believe the worst I ever saw it was a few years back where we had R-134a at nearly two-hundred and sixty a cylinder. (That was a fun summer…)

The first HFC refrigerant phase-out was to begin here next year on R-404A with vending machines and supermarket freezers. But just last week there was a ruling made by a Federal Court that may have turned this on it’s head. Click here for an article on the ruling. With this ruling nobody really knows what’s going to happen to the proposed phase-out of HFCs. The EPA’s ruling against 404A in vending machines and supermarket freezers still stands. What has changed is the eventual phase-out of 404A. The Honeywell corporation has already said that they will appeal the court’s ruling but who knows how long that will take. For now everything is in flux including the pricing of HFCs.

Conclusion

Does it make sense to begin stock piling HFC refrigerants in your warehouse? Well folks that’s the gamble that you’ll have to take. The price will eventually go up as the HFO and Hydrocarbon refrigerants begin to take over but we just don’t know when that price will climb. It could be four times as expensive as we hit the year 2021 or it could be the exact same price. You can take the risk today and buy a few pallets of R-404A or R-134a, sit on them for a few years, and then sell when you’re ready. I like to think of it as buying some stocks and waiting for the right time to sell but even the most experienced stock broker makes a bad trade every once and a while.

If it was me I would wait at least another year until the dust settles on this latest ruling. Maybe then we can get an exact date of when the first HFCs will be nationally phased out. What do you think? Will you take the risk?

Thanks for reading,

Alec Johnson
RefrigerantHQ

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