Looking ahead to the second half of the year, industry analysts expressed to the Shanghai Securities News that with the arrival of the peak season for maintenance markets, the prices of various refrigerant varieties for domestic and export markets may continue to rise. The industry may shift from price increases in some varieties to an overall steady upward trend over the year.

Relevant companies have stated that the implementation of production quotas on January 1, 2022 for China's third-generation fluorinated refrigerants (HFCs) has effectively resolved the contradiction of low product prices caused by excess production capacity, and when combined with improvements in the market supply and demand patterns of some varieties, the prices of HFCs products rebounded in the first half of the year. Looking ahead to the second half of the year, the prices for domestic and export markets may continue to rise. The industry may shift from price increases in some varieties to an overall steady upward trend over the year.

Looking ahead to the second half of the year, industry analysts expressed to the Shanghai Securities News that with the arrival of the peak season for maintenance markets, the prices of various refrigerant varieties for domestic and export markets may continue to rise. The industry may shift from price increases in some varieties to an overall steady upward trend over the year.

The recent collective fallback of the refrigerant sector may be due to market concerns about adjustments to the refrigerant distribution plan. Institutional research believes that the core logic remains unchanged, and it may be a good opportunity for allocation:

Question one: Adjustment to the quota allocation plan?

Answer: We think the framework won't change, and quotas between different varieties won't be adjusted randomly. According to official documents:

1. Since 1999, China has implemented quota management for HFCs by variety under a total control target, and continuing to implement quota management by variety for HFCs is conducive to maintaining policy and market stability;

2. Quotas are allocated by variety to avoid big fluctuations in HFCs product prices caused by changes in production volume due to adjustments of varieties within a company, which is not conducive to market stability;

3. To meet market needs, the country has stipulated two opportunities for quota adjustments within the year (personally, there may be room for adjustments in different varieties within that year, but the total quota is still limited to 10%).

Question two: Judgment on future prices and performance?

Answer: 1. Although downstream air conditioning and other production is subject to seasonal fluctuations, the long-term upward trend of constrained refrigerant supply remains unchanged (with reference to R22);

2. Considering the principle of product substitutability, we believe that the cost of fourth-generation products may be the price ceiling of third-generation products (estimated to be around 0.06 million by 2027, still with considerable room for growth);

3. The upward trend in export product prices, and the strong trend of refrigerant companies negotiating third-quarter order prices, indicates that there will be a quarterly increase in performance.

Refrigerant-related companies:

Dongyue Group (00189): The subsidiary Dongyue Organosilicon Materials has reported a profit, and it is expected that the company's net profit for the first half of the year will be about RMB 62-68 million, a turnaround from a loss of RMB 192 million in the same period last year. This is mainly due to an increase in product output, sales volume and revenue, as well as a decrease in unit production costs and an increase in gross margin. Dongyue Group has the highest global production capacity for R22. In addition, Dongyue Group's refrigerant products include more than 10 varieties such as R32, R125, and R134a, and these varieties have all experienced varying degrees of price increases since the beginning of this year.