Question

Tariffs to Come to Components of HFC Blends?

A few years back there was a lot of debate between varying refrigerant manufacturers and distributors on rather there should be tariffs installed on Chinese imported refrigerant. The argument was that China was dumping very low priced, often government subsidized, HFC refrigerants into the United States. The constant supply of imports caused the prices to shrink and shrink. This price depression ended up hurting American companies.

I remember a specific instance about eight years ago where I was working on a trailer load purchase of R-134a. (Forty cylinders to a pallet and twenty pallets on a trailer.) I called around to all of the usual players looking to get the absolute best price. Often times I would leverage one distributor against the other trying to get them as low as I could. Well during this time I was receiving quotes around the sixty dollar range. Some were high sixties, some middle, and others towards the lower end. If I was lucky I could find a distributor selling at a fifty-nine or fifty-eight dollars a cylinder.

During this same time the company I worked for was experimenting with importing their own product. We hadn’t officially done any imports, but we were testing the waters. In the case of this trailer load purchase of R-134a we went ahead and requested quotes from China. The quotes I received back were astonishing. I had three to four quotes and each and everyone was hovering around forty to forty-five dollars a cylinder. Yes, we had to pay freight to get the product over the ocean… but it was negligible when looking at that forty dollar price range. In the end we ended up going with an American distributor and paid the higher price. The import process wasn’t worth the headache to us, but to many others it was.

These drastic price differences between US and China refrigerants caused the overall price to drop and drop. This dropping price began to eat into the pockets of local distributors and manufacturers. As the years passed their margins shrunk and shrunk. If the price depression kept up then it wouldn’t make business sense to continue producing and selling domestic refrigerant. In order to correct this price depression suits were filed with the United States International Trade Commission. These suits requested an anti-dumping tariff on R-134a as well as other common HFC refrigerants. The aim was to install tariffs on Chinese imported refrigerant that would inflate the cost of these refrigerants so that they would be more in line with the American market price point. In essence, it would level the playing field and put China product on equal footing with American.

There was quite a bit of debate on these suits and they took quite a while to come to fruition. I remember watching the headlines and the moment any potential ruling would come out the price on refrigerants would jump up or down overnight. Eventually, a decision was made by the Trade Commission. In the summer of 2016 the Commission agreed to install anti-dumping tariffs on HFC refrigerant blends. The big ones here are R-410A and R-404A. While having the tariff approved was great news… there was a small problem. The tariff was ONLY on the specific blended refrigerants, so only on R-410A and R-404A. (Other blends as well.) The tariff was NOT on the components of those refrigerants. In other words, if I imported Chinese R-410A refrigerant today I would pay the tariff. However, if I import Chinese R-125 and R-32 into the US then I face no tariffs. (R-125 and R-32 blended equals R-410A.) Begin to see the problem here?

Once this ruling was announced there was a change within the industry, but it was only slight. Now all of the Chinese importers moved from purchasing R-410A over to purchasing the component refrigerants and then blending the refrigerant in house. We are now back to square one due to a governmental oversight. The good news here is that R-134a is not a blend and an anti-dumping tariff was levied against it in spring of 2017.

The Future

In an effort to change the ruling from 2016 an additional suit has been filed with the International Trade Commission. This additional suit has requested tariffs be placed on imported refrigerant blend components as well. This would include your R-125, R-32, and other similar refrigerants. What’s unique about this is that manufacturers that are usually at odds with each other are working together to stop the flow of Chinese refrigerants. Arkema, Chemours, and Honeywell have all joined and pushed this suit forward to the Trade Commission.

At this point in time we are all still waiting on a ruling from the Trade Commission. It was announced last week that the Commission needs an additional two months before a decision can be made. (Link) They gave themselves the deadline of March 11th. We’ll see if that comes to fruition or not.

While we all sit patiently and wait to see what happens here I can only imagine what will happen to the prices of these refrigerants if a tariff is installed. Yes, it may be for the good of American companies but are American consumers and contractors happily going to pay the increased price? Will the price points with tariffs be perfectly in line with what the American market is? Or, will we price the Chinese product so far out of market that we consumers will buy American be default?

Thanks for reading,

Alec Johnson

RefrigerantHQ

Sources

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