"Kigali Amendment" has been officially landed in China, "double control double limit" catalytic industry inflection point ahead of time

On June 17, 2021, the Permanent Mission of China to the United Nations deposited with the Secretary-General of the United Nations the Chinese Government's acceptance of the Kigali Amendment to the Montreal Protocol on Substances that Deplete the Ozone Layer, which entered into force for China on September 15, 2021. On September 30, 2021, my country's Ministry of Ecology and Environment issued the ''Notice on Strict Control of **Batch of HFC Chemical Production and Construction Projects (Draft for Comment)'', which requires that all regions shall not build or expand R32, R134a, R125, R143a and R245fa chemical production facilities for controlled uses such as refrigerants and foaming agents. China's control policy on HFCs refrigerants has been gradually implemented. With policy expectations becoming clearer, the industry boom will gradually pick up. Recently, due to the influence of the "double control and double limit" policy, small and medium-sized refrigerant enterprises in some areas have understarted, which has a great impact on the small and medium-sized enterprises that are already at a disadvantage in the quota competition, but it has alleviated the intensified competition caused by the quota competition, resulting in the situation of overcapacity in the industry. We believe that with the quota benchmark period has been more than half, the gradual landing of the policy, and by the "double control and double limit" of the catalyst, the refrigerant industry boom inflection point or has arrived ahead of schedule.

Three generations of refrigerants (HFCs) will usher in a boom period of more than ten years

According to the requirements of the Kigali Amendment, China should take the average amount of HFCs used in 2020-2022 as the baseline, freeze the production and use of HFCs at the baseline level from 2024, and reduce it from 2029 to 2045. The cumulative reduction is more than 80%, and the phase-out period is as long as 20 years. We believe that, unlike the strong cyclical trend of the second generation refrigerants (HCFCs) in the past, HFCs will usher in a boom period of more than ten years:(1) the supply side (I .e. quota). The quota baseline period of HCFCs in 2010-2012 is driven by the strong demand brought by home appliances going to the countryside, so that the quota benchmark is set at a high supply point, and after the demand falls back, it will enter a long-term supply digestion stage. In the HFCs quota baseline year 2020-2022, the quota benchmark * may eventually be set at a trough in demand due to the impact of the new crown epidemic and the recent double-limit policy on both the supply and demand sides. (2) Demand side, due to the impact of the actual demand will eventually return to normal, while China and the world's refrigeration demand will also maintain a long-term upward trend, due to quota constraints limited supply of HFCs refrigerants will be in short supply for a long time. (3) Alternatives: Environmentally friendly fourth-generation refrigerants (HFOs, HCs) have been partially applied in some downstream areas, but in the field of air conditioning, where refrigeration demand accounts for nearly 80%, fourth-generation refrigerants are still in the exploratory stage, and the replacement of HFCs * main variety R32 is still a long way off. Therefore, we believe that the refrigerant industry will usher in a long period of rising prices and profit centers.

Refrigerant industry recovery trend is obvious, leading enterprises will meet the "Davis double-click"

Driven by both the supply and demand ends and the raw material end, the recent signs of recovery in refrigerant prices are obvious. According to Baichuan Yingfu data (September 30),R32, R125, R134a including tax price of 1.8, 5.1, 38000 yuan/ton, respectively, 63.6 percent, 251.7 percent, 156.8 percent, the price difference is also significantly expanded. We believe that the industry reversal may be right now. According to our calculations, the industry leaders and the pattern that will occupy the vast majority of the HFCs market in the country and even the world have been basically determined. Their refrigerant business will bring a steady stream of high-quality cash flow, which will in turn enable them to have sufficient strength. Research and develop four-generation refrigerants, and continue to expand into new energy, new materials and other fields, to build the best fluorine-containing new material platform company. High certainty of performance growth and good growth expectations, the industry leader may usher in a "Davis double-click".