A Changing of the Guard in Fluorocarbons

29 April 2002 00:00  [Source: ICB Americas]

The overall fluorocarbons market is growing slowly--foam blowing, the third largest segment, is quickly turning to alternatives that do not damage the ozone layer. At the same time, refrigerants are holding their own, fluoropolymer precursors are booming, and fluorocarbon producers are bringing new plants on stream to address shifting demand. But with margins diminishing, some observers question the market's long-term prospects.

In 1999, demand for fluorocarbons in North America, Western Europe and Japan totaled 679,000 metric tons with a value of over $3.5 billion at the producer's level, according to a recent study by SRI Consulting, Menlo Park, Calif. Fifty-eight percent of that, or 395,000 metric tons, was contributed by the North American market, which SRI sees growing at about 0.9 percent annually through 2004. The Western European market, which consumed 171,000 metric tons (25  percent), is growing at 3.0 percent. Japanese consumption of fluorocarbons, 113,000 metric tons in 1999 (17 percent), is declining at 1.3 percent. Major fluorocarbon producers in the US include Atofina, which has a total capacity of about 103,000 metric tons, Ausimont (18,000 metric tons), DuPont (188,000 metric tons), Honeywell (130,000 metric tons), Ineos Fluor (30,000 metric tons) and MDA Manufacturing (a joint venture of 3M and Daikin America; 18,000 metric tons).

Shrinking demand in foam-blowing is the major factor in the North American market's weak performance. In 1988, the segment consumed 109,000 metric tons of fluorocarbons, says SRI. By 1994, however, the Environmental Protection Agency (EPA) had banned the use of chlorofluorocarbons (CFCs) in most foams, and demand fell to 68,000 in 1996, before recovering somewhat to 95,000 in 1999. A hydrochlorofluorocarbon approved for foam-blowing in 1992, HCFC-141b, has made up much of the difference, but its production and importation will be prohibited in January 2003, notes Raymond Will, senior consultant at SRI. Non-fluorocarbon alternatives are taking over much of the market, and SRI anticipates that the foam-blowing market will fall to 45,000 metric tons by 2004, an average annual decline of 13.8 percent.

"We expect the overall use of fluorocarbon products (HCFC and HFC) for insulation foam manufacturing to drop by 60 percent with the phaseout of 141b," says Kenneth Neugebauer, vice president, specialty products, at Solvay Fluorides Inc., a subsidiary of Solvay SA, which in December 2001 agreed to acquire Ausimont for  1.3 billion ($1.2 billion). Solvay and Ausimont produce fluorocarbons in Europe. "In the US, each segment--polyiso, appliance, spray, others--will find their own solutions based on economics and quality of foam requirements." All sectors currently use HCFC-141b, he observes, but the market will fragment dramatically as of 2003. Solvay will be introducing HFC-365mfc in Europe; a production facility is to be completed at Tavaux, France, in time for the phase out of HCFC-141b. "Pour-in-place and spray-foam sectors are expected to be the two largest segments in Europe to transition to HFC-365mfc, whereas other segments may use hydrocarbons or pure water-blown foams," says Mr. Neugebauer. However, the product will not be marketed by Solvay in the US due to patent issues, he notes.

Mr. Neugebauer notes that environmental concerns do present some good news for fluorocarbons. "A positive point for HFCs is the future efficiency requirements for appliances and buildings that are being advocated in order to reduce global warming," he says. "The future planned efficiencies can best be served by HFC blowing agents due to their superior insulation properties." HFCs do have a global-warming potential, but an analysis that considers the entire life cycle of foam insulation demonstrates that fluorocarbons may be the best choice, he explains.

In the US, HFCs -134a and -245fa are the leading alternatives, says SRIÕs Mr. Will. "HFC-245fa is nonflammable, has a low global warming potential and insulates similar to HCFC-141b," he points out. Honeywell licenses the use-patent for HFC-245fa, which it will produce commercially in a $200 million plant being constructed in Geismar, La., and scheduled for completion in July. HFC-125, a refrigerant, will also be produced there.
Tom Werkema, director of regulatory affairs at Atofina, suggests that EPA may revise the timeline for phasing out the use of HCFC-141b. Since 1993, its production and importation after January 1, 2003, has been prohibited by EPA's Accellerated Phaseout Rule. Atofina petitioned as early as February 1999 asking that  EPA allow HCFCs -124, -142b and -22 and HFC-134a as alternatives to HCFC-141b. In July 2000, EPA proposed a revision of its Significant New Alternatives Policy (SNAP) that would prohibit the use of all HCFCs in foams as of Jan. 1, 2005. "Due to significant and varied input, they have been forced to reconsider this proposal," says Mr. Werkema, "and we expect they will return the HCFC phaseout dates to their original time frames, which were after January 1, 2010. In the past year, EPA has realized that in some market sectors, 141b has no clear successor to date, [and] that 245fa is not yet available in full scale quantities," he says. Mr. Werkema also believes that EPA will soon publish a final version of its Allocation Rule for HCFCs, which had been marred by many errors. "Under the Allocation Rule, EPA may allow some limited, market-sector specific allowances for continued use of 141b for a limited time frame," he explains. "The proposed Allocation Rule already contains a 'carve out' for the space shuttle and defense applicatoins for 141b blown foam." Atofina produces HCFCs -141b, -142b and -22 and HFC-134a in the US.

Refrigerants are the largest fluorocarbon market, with North American consumption in 1999 totaling 172,000 metric tons, according to SRI. The consultancy projects growth of 2.5 percent through 2004 to a total of 195,000 metric tons. Before phase-outs began, the major refrigerants were CFCs -11 and -12, HCFC-22 and R-502. While these have been largely replaced by HCFC-22, HCFC -123, HFC-134a and a host of blends, the HCFCs are themselves being phased out as well, and HFC products will take their place. In refrigeration, HFC-134a and the blend R-404a (HFCs -125, -143a and 134a) are the dominant replacements, and their supply is in balance with demand, says Rick Kanter, business manager, refrigerants, at Atofina.

"In large commercial air conditioning, HFC-134a has replaced a majority of the HCFC-22 used in new chillers," Mr. Kanter reports. "In residential and light commercial air conditioning, the largest markets for HCFC-22, the transition rates differ significantly by region, due to varying phase-out schedules. In Europe and Japan, HCFC-22 is being rapidly phased out, and the transition to HFC-32 based blends (R-410A and R-407C) is accelerating in these regions. In the US, as the phaseout of HCFC-22 in new equipment is not until 2010, HCFC-22 remains the dominant refrigerant in new equipment. However, several leading air conditioning OEMs recently have made major new product launches in the US based on R-410A with significant market success." In automotive air conditioning, HFC-134a has experienced steady growth since 1993, when it replaced CFC-12.

Mr. Kanter notes that all of the HFC blends are currently based on HFCs -32, -134a, -143a and -125, and he does not expect other components to have a significant role in the future refrigerant market. It is possible that new blends will emerge, he adds. "However," he says, "OEMs, distributors and end-users all have indicated their preference for standardization in the industry on a minimum number of blends, which is expected to limit the potential for a proliferation of new blends. It is expected that R-134A, R-410A, R-407C and R-404A will be the leading HFC refrigerants in the future." In March, Atofina started up the first world-scale production unit for HFC-32, located in Zaramillo, Spain. HFC-32 is the key component in blends R-407C and R-410A, substitutes for HCFC-22. Atofina chose Zaramillo for its proximity to the European market, but the company also plans to construct a larger unit for HFC-32 in the US as soon as the US market moves away from HCFC-22.

That may be a while, considering the price of HCFC-22, which Jay Kestenbaum, president of Refron, a major distributor and reclaimer of refrigerants, calls the lowest in decades. "There is an overabundance of product," he says, pointing to unrestricted imports, cool summers for the past two years, and improved venting and conservation practices as factors. The price of HFC-134a has also been very soft, according to Mr. Kestenbaum. "The automotive season was poor last year-people did not have the type of shortages they expected," he says. "Since 1994 it's been in all the cars, but [the producers] are guessing on how fast people will retrofit." The fluorocarbon reclaiming business is weak as well, says Mr. Kestenbaum. "Most large systems have been retrofitted, so there's less product coming out of them, and fewer and fewer people willing to tie cash up in buying recovered material on speculation," he explains.

While the foam-blowing market is shrinking and the refrigerants market is growing only slowly, the market for polymer precursors is doing very well, says Mr. Will. "[Fluoropolymers are being consumed in] greater volumes, and the products are more widely used," he explains. "[Producers] are probably looking at some degree of price erosion but making up for it in volume." In 1999, US consumption of fluorocarbons in the production of fluoropolymers totaled 104,000 metric tons, according to SRI, and that will reach 140,000 by 2004, for an average annual growth rate of 6 percent. HCFC-22 leads, with 82,000 metric tons consumed in 1999, followed by HCFC-142b, at 19,000. Two other fluorocarbons also played a role: HFC-152a, at 2,000 metric tons, and CFC-113, at 1,000 metric tons.

Numerous capital investments by fluoropolymer producers testify to the growing market for precursors. Asahi Glass, for example, is increasing polytetrafluoroethylene (PTFE) dispersion capacity at its Bayonne, N.J., site by 50 percent, with plans to go on stream by mid-2003. The company reportedly intends to produce tetrafluoroethylene perfluoroalkoxy vinyl ether copolymer resins (PFA), ethylene tetrafluoroethylene copolymer resins (ETFE) and propylene-based fluororesins at the site as well, with plans to double capacity by 2010 if US demand continues to increase at its present rate.

Atofina has increased capacity for polyvinylidene fluoride (PVDF, sold under the Kynar trademark) at Calvert City, Ky., by 10 percent. A two-tiered expansion is also underway at Pierre Benite, France; the first stage of the French expansion will increase the company's Kynar resin output by 5 million pounds. Ausimont's new $20 million Tecnoflon fluoroelastomers facility, located in Thorfare, N.J., will be on stream this spring. Solvay increased its share of the fluoropolymers market from 3 to 10 percent with its acquisition of Ausimont, which produces a wider range of products.

Daikin USA has set up a full-service fluoroelastomer applications laboratory facility at its Orangeburg, N.Y., site, but most of Daikin's investments have been in other regions of the world. The company is investing 1.33 billion Yuan ($161 million) to establish Daikin Fluoro Chemicals (China) Co. Ltd.; when production begins late in 2004, the majority will be exported. The company also reportedly plans to establish a new subsidiary, Daikin Chemicals France SAS, that will produce fluoroelastomers for the automotive components market of Asia, the USA and Europe, with production to begin in February 2003.

SRI's Mr. Will notes, however, that while volumes are increasing, margins are declining, and he questions whether fluorocarbons in general will continue to hold appeal for today's major players. "The leaders are not showing the same aggressiveness in bringing out new products," he observes. Some industry participants are predicting that the market will plateau in 10 years. Such talk suggests a serious impediment to funding new products, because market acceptance and a full life cycle to recover R&D costs may not be achievable. "Polymers are the good parts of the fluorocarbon business," he says. "The rest of the business has a much dimmer future prospect."

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