On April 4th, 2019 a suit was filed by the HFC Coalition to the International Trade Commission (ITC). This suit aimed at stopping the dumping of HFC blended refrigerants such as R-410A, R-404A, and R-407C. The ITC’s decision on rather or not to review the suit was set for a deadline in May, but it was then pushed back to July. We were all expecting a decision to come next month but it was announced at the tail end of this week that the ITC has decided to accept the case and began the inquiry.
There have already been anti-dumping tariffs on HFC blends for a few years now, but the ITC’s ruling back then stated that only the blended refrigerant could be subject to the tariff. The components of these blends were not subject to the tax. So, businesses could import R-32 and R-125 refrigerants from China and face no penalties. These same businesses would then blend the refrigerant here in the States and then circumvent the tariff.
This oversight by the International Trade Commission has led to what we have today. Dirt cheap prices on some of the most common HFC refrigerants used. In essence, the initial levying of tariffs on blended refrigerants had very little impact. Everyone was getting around the tariff by importing components. It was like nothing had changed.
This is where the new suit filed in April comes into play. This case targeted the components of these blended refrigerants. On the original announcement of the suit prices on HFC blends went up nearly forty to fifty percent. As the dust began to settle prices slowly sank back down to pre-suit levels. Now though, the ITC has announced that they will hear this new case.
As I said previously, the Department of Commerce has decided to began an inquiry on HFC refrigerant components. Originally, everyone had thought that the inquiry would be solely focused the blending process of the components. So, if you imported the components and then blended them into an HFC blend that is tariffed then you would be subject to the tax.
To my surprise though there were four inquiries announced this week. Let’s take a look:
- The first inquiry is what we just mentioned above. This is the blending of the components within the United States and circumventing the tariff. If the ITC agrees then a tariff would be installed on the blending process if the components are sourced from China.
- The next is what’s known as unfinished blends. I’ll be upfront with you here, I don’t know one-hundred percent what this is but my educated guess is that this is Chinese refrigerant companies blending the refrigerants but NOT to the exact levels to meet the anti-dumping blended requirements. In other words, they get it close to R-410A… but not all the way. This process would also be taxed if the ITC approves.
- The next inquiry is similar to our first point. This has to deal with importing components and blending them in a different country. The difference here though is that this is referencing India in particular. In this scenario, China exports the refrigerant components to India and then India blends them to create the blended HFC. This was yet another work around that companies found as the country of origin is India… even though the goods came from China. If approved anti-dumping would be installed in this scenario as well. While the initial inquiry only states India that does not mean that other countries are exempt. Say for example, China imports components into Vietnam and they blend there. If a decision is made here let’s hope it applies to all countries.
- The last change is on the blended refrigerant R-421A. This refrigerant blend actually doesn’t have a tariff on it because the product is patented. Patented refrigerants were excluded from the previous anti-dumping order. R-421A is quite similar to the more popular blended refrigerant known as R-407C. So, folks were importing the non-tariff R-421A and then finishing the blend to create R-407C. To give an example here, R-421A is comprised of R-125 (58%) and R-134a (42%). R-407C is comprised of R-32 (23%), R-125 (25%), and R-134a (52%). The only thing missing between these two refrigerants is R-32 and that is easily enough imported in without a tariff. If the ITC rules in favor then these patented blends will see tariffs installed on them as well.
Call these work around what you want. Maybe they are clever loopholes found by hard working businessmen. Or, maybe, they are skirting the edge of the law and they should all be stopped. However you feel, it is all coming to a head now. Now that this inquiry has begun there is a great amount of uncertainty in the market. What will happen? Will they rule in favor of all four? Just some, or none at all?
The official inquiry by the Department of Commerce will be hitting the public register on Monday. From that date onwards, June 17th, there will be a three-hundred day period for the ITC to make their decision. Here’s the scary thing though folks. If the ITC decides to impose tariffs in any of the ways we described above then those tariffs could be retroactive. This is huge and this is the main reason we are seeing prices go haywire.
Look at this way. Let’s say I am a business owner and I am going to import a trailerload of R-32 and R-125 into the United States next week. The product comes in, I blend it to R-410A, and then sell all of the product a few months later. I could face a tariff on ALL of that imported product nearly a year after I had imported and sold it. The ITC has the power to make this ruling retroactive and because of that the importing of HFCs has become a lot less attractive. Business owners could be looking at an over one-hundred percent tax on product they already sold.
Everyone who saw this coming bought up on as much product as they could and now that the inquiry has begun prices have begun to rise. A few major manufacturers have already announced their price increases. The question now though is will these manufacturers put limits on what quantities businesses can buy as well? Or, will the high prices be enough?
If you were smart enough to buy ahead you can now make a killing since the import market has all but dried up. Let’s take a look at some of the pricing trends we’re seeing now since this inquiry began just a few days ago:
R-410A – Twenty-Five Pound Cylinder Pricing:
- Fall 2017 – $140
- Fall 2018 – $65
- Jan 2019 – $68
- Feb 2019 – $56
- Mar 2019 – $49
- Apr 2019 – $100 – News of possible tariffs
- May 2019 – $78
- June 2019 – $65 – Before Inquiry
- June 2019 – $100 – After Inquiry
- I will state that the $100 is with some vendors. I have seen some say one-hundred and fifty and even some at one-hundred and eighty dollars a cylinder.
R-404A – Twenty-Four Pound Cylinder Pricing:
- Fall 2017 – $175
- Fall 2018 – $80
- Jan 2019 – $70
- Feb 2019 – $58
- Mar 2019 – $50
- Apr 2019 – $105 – News of possible tariffs
- May 2019 – $89
- June 2019 – $60 – Before Inquiry
- June 2019 – $105 – After Inquiry
R-407C – Twenty-Five Pound Cylinder Pricing:
I don’t have as much pricing information on this product but I can still show you the pricing swing that took place this month:
- June 2019 – $85 – Before Inquiry
- June 2019 – $105 – After Inquiry
With the announcement of these inquiries this week there is now a lot of uncertainty introduced within the market place. It is difficult to say what will happen with pricing now. In the earlier announcements there was still hope that the ITC wouldn’t take up the case, but now that it is official we may see prices stay at these levels, or even go higher. It could go as crazy as two-hundred dollars plus a cylinder late this summer for some of the more popular HFC blends. But, we just don’t know for sure.
After all, it’s been an unseasonably colder summer for most of the country. I just took a bike ride earlier today in seventy-four degree weather. That is unheard of in Kansas in the middle of June. It should be close to one-hundred degrees. I know New England and other areas are experiencing the same thing. This colder weather may act as a buffer to this pending inquiry and help insulate the pricing situation until a decision is made next year.
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Thanks for reading,
Also, check out our other earlier articles on this same topic: