The HFC coalition comprised of Arkema, Honeywell, Mexichem, and Chemours initiated a circumvention case in June, 2019 to the Department of Commerce (DOC), whereby companies that use components from China to blend refrigerants in the U.S. are circumventing a 2016 blend order for anti-dumping of Chinese refrigerants. A preliminary ruling made April 6th, 2020 by the US Department of Commerce (DOC) is going to increase hydrofluorocarbon refrigerant prices across the HVAC industry. This preliminary ruling places an import duty on HFC components (R-125, R-32, R-143a) imported from China to produce commodity HFC refrigerant blends (R-410A, R-404A, R-407A, R-407C, and R-507A) in the U.S. Included in the scope of this preliminary ruling are import duties on commodity HFC refrigerant blends from India if those blends contain any HFC components from China. US companies that were importing these products and blending refrigerants in the U.S. will now have to pay up to 285.33% tariffs on past and future products. This decision by the DOC will likely have an immediate impact on HVAC Technicians and Contractors who are buying HFC’s and serving a market that is already reeling from the impact of the Covid-19 crisis.
How did this start?
In 2016, antidumping duties were levied on hydrofluorocarbon (HFC) blends 404A, 407C, 407A, 410A, and R-507A imported into the United States from China. However, that ruling excluded the components from the scope of the antidumping order. In fact, the International Trade Commission (ITC) has ruled, on three separate occasions, that HFC components fall outside the scope of the 2016 antidumping order. As in many cases, the only place to buy R125 in the world is in China. On April 6th, the DOC announced an affirmative preliminary antidumping duty (AD) circumvention ruling on HFC components from China for further blending and processing in the United States. They also announced an affirmative preliminary antidumping duty on finished HFC blends made up of Chinese and Indian components that are then imported into the United States. In both rulings, the DOC established that HFC components from China and finished HFC products from India that were not originally subject to these tariffs, now are.
Although the DOC hasn’t come to a final ruling on what the duties will be for this circumvention finding, they are requiring that companies in violation pay a 101.82-285.33% cash deposit on an estimation of what the tariffs could have been if they had been paying them dating all the way back to June 18, 2019. This is a preliminary ruling, but the Department of Commerce has stated that they will make their final ruling on July 2, 2020.
How does that impact my business?
It means that the prices of HFC blends containing R-125, R-32, R-143a components will go up and most likely stay up. This may not be immediately felt at the contractor level as the wholesalers stocked up in the first quarter 2020 before the ruling was finalized, however on replenishment later in the season, it is highly likely that everyone will feel the sting of much higher prices, R404a, R507, R407a, R407c and R410a maybe as much as triple the current cost. We expect the 407x space to be absorbed short term by material already in the supply chain and then transition to alternative products like 422b, 427a, 438a, RS44b etc. or simply utilize the best replacement for R22 (reclaimed R22).
Conclusion:
Given the current U.S. position on China, we fully expect that this ruling will be confirmed and pricing for refrigerants to move to higher costs on a go-forward basis. We do expect lawsuits to move forward, but this will not have any impact on the costs of the refrigerant over the next year or two until its settled. We believe that this one is here to stay.