Thoughts on R-22 & Next Month’s Phaseout

Christmas is next week and then the week after is New Years. That leaves us with less then two weeks until the Environmental Protection Agency’s phaseout of R-22 goes into effect. The phaseout, effective January 1st, 2020, prevents any new manufacturing or importing of R-22 into the United States. The only way to purchase R-22 from then on will be through certified EPA refrigerant reclaimers or through refrigerant distributors who have stock piled R-22 in anticipation of the phaseout.

As you all know, this phaseout has been ten years in the making. It all started back in 2010 with the initial launch. There was a second wave of more restrictions that hit in 2015 and now it all comes to a head in a few weeks. In this article I’m going to review the past on R-22, the present, and the future. Why not… I mean it is around Christmas! I promise though, that the ghost of R-22 future won’t be frightening.

R-22 Past

The news of an impending phaseout even if it is ten years in the future can do a lot of strange things to the product’s price. In the first few years after the staggered phaseout began in 2010 there wasn’t too much of an impact on price, but as the years wore on the price of R-22 began to climb. This was due to the phaseout coming closer but it was mainly due to speculators.

Speculators or investors are folks who are either in the industry, or from outside the industry. Whatever their background is, they saw an opportunity from the R-22 phaseout. In the early stages of the phaseout R-22 was used everywhere in a variety of applications. You could find them in offices, homes, factories, and even ice rinks. It had been one of the most common refrigerants in the world. So, if this ever popular refrigerant is going to be phased out in a couple of years… why not try to grab a piece of that pie? After all, if you can get in while the price is still low and then hold onto your inventory you should be able to make a decent profit once the price climbs.

In the initial stages we saw pricing on R-22 average between two-hundred to three-hundred dollars for a thirty pound cylinder. This price more or less stayed the same from 2010-2015. There were some ups and downs here and there but it typically stabilized once the season was over. It was in 2015 that we really began to see the prices rise. This was due to the new import and manufacturing restrictions that went effect but also due to the speculation. At this point we were only five years away and a lot of folks who were sitting on their hands decided to jump in and get some inventory for themselves.

That price of two-hundred to three-hundred slithered away. Instead we saw the price averaging between three-hundred to four-hundred dollars for a thirty pound cylinder. When the summer of 2015 ended folks were hoping that the price would gradually lower during the off season, but the demand kept up even during the winter months. When 2016 hit we saw the prices rise even higher to an average range of four-hundred to five-hundred dollars.

That wasn’t the worst of it though folks. No, 2017 is when we really began to see the prices on R-22 grow to astronomical proportions. The prices ranged between seven-hundred to eight-hundred dollars a cylinder. These were the prices that all of these prospectors were hoping for. This is where true profit could be made. All those folks who bought up at that three or four-hundred dollar range could now sell for double what they bought it for.

Many companies saw this high price and thought that it could only go higher. One such example, Hudson Technologies, bought up millions of dollars worth of R-22 in anticipation of an even steeper price climb. There was a problem though folks. Just like with any market, if the price of the genuine product is too high then alternatives will be developed. The R-22 market was no different. Homeowners and business owners did not want to pay this extraordinary high price just to recharge their systems.R-22 Pricing Chart

While the speculators were buying up R-22 and hoping for the increase there was another group of business folks working to provide cheaper alternatives to R-22. As I am writing this article there are now over one-hundred R-22 alternatives out there. All of them have their own pros and cons. Some of them require a full retrofit of the system and others barely require any changes. The main goal of all of these alternatives though was to be cheaper then the standard R-22.  With the high R-22 prices in 2017 alternatives flourished.

“As the inventory of R-22 diminishes in the future, it is logical to expect that prices will increase.  Fortunately, R-22 retrofit products, such as MO99 and NU22B, have been working very well in existing equipment for more than 10 years.” – Chuck Allgood Refrigerants Technology Leader at The Chemours Company

Pairing the huge amount of stock speculators were sitting on with the mass of alternatives available the price began to trend downwards. It started towards the end of 2017. Many folks thought that the off season would cause prices to drop but that it would rebound right back up when 2018’s spring started. Boy were they wrong. The 2018 year saw an average price range between four-hundred and five-hundred dollars. The price kept on crashing. There was so much stock on hand and now that the price was going down people panicked and started selling all of their inventory to unload their burden. This caused the pricing to go even lower. For a real life example of this look up the stock prices of Hudson Technologies over the past five years. You can definitely see when R-22 hit it’s peak in 2017 and when the market crashed shortly there after.

In 2019 we saw a price range of two-hundred to three-hundred dollars. This was back to 2014 levels! You can really see this illustration in the chart that I’ve attached for this section. It definitely paints a picture of just how fast the prices rose and how fast they fell. I also did my best here to give you a prediction of what we will see in the coming years on R-22 pricing. The 2020, 2021, and 2022 numbers are predictions though, so take them with a grain of salt.

R-22 Present

Alright folks, so now that the past is in the past let’s take a look at what the R-22 market looks like today. This section won’t be as near as big as the others but it’s worth looking into to understand exactly where we are at today. The first thing I want to mention is the current market price. I had touched on this earlier, but today if you were to purchase R-22 you can expect to pay between two-hundred to three-hundred dollars a cylinder. It all depends on who you buy from. During my research this week I’ve seen prices ranging as low as two-hundred and twenty-five dollars a cylinder upwards to two-hundred and ninety-five dollars a cylinder. A typical HVAC contractor can expect to pay right around that three-hundred dollar mark, but don’t be surprised if some are paying around three-hundred and fifty dollars.

The other point to make here is that overall demand for R-22 is down compared to previous years. This is mainly due to the aging of the machines that are out there. Since no new machines could be manufactured at or after 2010 the age of an R-22 machine is at least ten years old. In some cases manufacturers saw this phase out coming and stopped using R-22 before 2010. So, your R-22 unit could even be twelve years or older. The point here is that these machines are starting to die. A typical traditional split system will last anywhere between fifteen to twenty years. We are already quickly approaching the lifespan of these R-22 units… so as to be expected, the demand is down.

Since this is a losing battle and the demand is going to be shrinking with each passing year we are already seeing major companies remove themselves from the R-22 market. A major manufacturer of refrigerants, which I won’t name here, has already removed themselves from the R-22 market. It’s not just them though folks, in the past six months multiple wholesalers have removed themselves from selling R-22. The demand isn’t there and it just isn’t worth their time to stock the product.

So, in just a few weeks we have a product that is phased out across the United States. (You can still purchase it as long as you can find a distributor or a reclaimer.) You also have the demand for this product shrinking and shrinking with each passing year. This R-22 product also has reclaimed cylinders available as well as over a hundred different alternatives. The question now though, is what does the future hold for R-22?

R-22 Future

For this section I reached out to over a dozen contacts that I have within the refrigerant industry. These folks range from manufacturers, distributors, contractors, content writers, and consulting firms. My aim here was to not only provide my insight but also to get the view and opinions from a host of others so that I can provide you all with a well rounded look at the future of R-22.

First thing is first, there are a lot of folks who believe that R-22 will NOT be available after January 1st, 2020. That is not true. You will still be able to purchase R-22 as long as you are certified with the EPA and are able to find a distributor with quantity on hand. The same rule applies for reclaimed R-22 refrigerant. It is perfectly legal to buy as long as you are certified. The struggle you may face is finding a wholesaler that will provide the product. If you’re not having any luck feel free to reach out to me and I can put you in touch with a few folks.

The number one thing we need to remember when it comes to looking at R-22 is that these machines are only going to be around for another five to ten years. Yes, there will be some outliers, but for the most part these machines will all be retired in that time. Dead and gone. It will go the way of R-12 is today… except I can’t imagine anyone restoring a ‘classic R-22 system’ they way do with R-12 automobiles.

So, with that five to ten year deadline in mind, what can we expect over the next few years? Please note that this is  a prediction on my part folks, so don’t take my word as gospel. That being said, I believe that this is all going to boil down to supply and demand. And at this point of time folks there is plenty of supply of R-22. In fact there are stockpiles of it. One refrigerant manufacturer, not the one I mentioned earlier, has a large surplus of R-22 on hand and waiting to be shipped. While other manufacturers have backed out of the market these guys have bought up in hopes of being the only major source to purchase from.

It’s not just the virgin product that we have to consider though folks. There is plenty of reclaimed refrigerant out there as well. In fact, we are seeing the same type of logic on reclaimed product that we did with virgin. A lot of folks are buying up this reclaimed product so that they can stockpile it before the phaseout hits. One of my contacts put it this way:

“The bigger refrigerant recovery companies are overpaying for reclaim gas in order to have a nice stock for next year and beyond.” – Eric Sugarman Owner at Refrigerant Depot.

So, with that statement above in mind we can truly see the R-22 market beginning to consolidate. We have one of the major refrigerant manufacturers stockpiling the product and then we have the larger recovery companies stockpiling their own source of reclaimed R-22. What all this means is that the amount of companies that will be available to purchase R-22 from is shrinking and shrinking. This will eventually result in a price increase due to the lack of options.

The good news here though is that the refrigerant manufacturer that has this stockpile has publicly claimed that they do not want R-22’s price to go over three-hundred dollars a cylinder. While this sounds nice and all, there is a strategy behind it. You see if R-22 gets to around four-hundred dollars or higher then that opens the doors for alternative products to come in and take the business. Keeping prices at three-hundred dollars prevents the alternative refrigerants from gaining a foothold on the market.

The consensus that I received from my contacts was that there is enough virgin R-22 and reclaimed R-22 product out there to keep demand fulfilled for the next several years. The price may rise slightly, like I indicated in my pricing graph earlier, I do not foresee a drastic increase. No, instead it will be a slow crawl upwards.

Conclusion

This article will by no means my last article on R-22. I know there will be more news down the road and always more surprises. No one knows for sure what is going to happen next year or the year after. It is all a guessing game. Hopefully though, this article was able to give you a bit more knowledge so that when you make your guess on the market you’ve got some logic in your corner. If you would like more thoughts or notations on R-22 please feel free to reach out to me for consulting and we can discuss rates.

Thanks for reading and I hope you and your family have a Merry Christmas,

Alec Johnson

RefrigerantHQ

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