According to analysis, the transition to quota-based production for HFCs in 2024 has led to a rapid increase in prices and margins due to rigid supply constraints. The HFCs quota policy is expected to remain stable from 2026 to 2028, maintaining overall supply rigidity. On the demand side, continued national subsidies and strong consumption stimulus policies in 2026 are likely to sustain growth in air conditioner and automobile sales, driving corresponding refrigerant consumption. Rising downstream demand, coupled with the gradual phase-out of second-generation refrigerants, is creating substitution opportunities. With long-term supply constraints and steadily increasing demand, the high growth outlook for HFCs is expected to continue.
Key points from the analysis include: Environmental policies are driving refrigerant upgrades, with China's HFCs supply under strong constraints due to the quota system. Refrigerants have evolved through four generations, with the first generation globally phased out and the second generation largely eliminated in developed countries. Developing countries began their phase-out processes in 2015, while third-generation refrigerants (HFCs) are in the early stages of elimination. The Montreal Protocol and Kigali Amendment set clear deadlines for discontinuing second- and third-generation refrigerants. Starting in 2024, China's HFCs entered a quota era, with total production quotas of 748,500 tons, 791,900 tons, and 797,800 tons for 2024-2026, and domestic production quotas of 342,300 tons, 389,600 tons, and 394,100 tons, respectively. Total HFCs production quotas are expected to remain broadly stable. Under the Montreal Protocol, China will begin reducing HFCs usage in 2029, with fixed total carbon emissions for HFCs from 2026 to 2028, ensuring continued supply constraints. Market shares of major HFCs producers such as Juhua Stock, Sanmei Stock, Yonghe Stock, Dongyue Group, and Sinochem Lantian are expected to remain largely unchanged, with high concentration among leading firms.
Since the implementation of HFCs quotas in 2024, third-generation refrigerant prices have risen sharply, with a significant recovery in market conditions. By the end of 2025, margins for R32, R125, and R134a increased by 79%, 37%, and 51% respectively compared to the end of 2024, with all three products trading at historically high levels. In 2026, the domestic HFCs market continued to consolidate at high levels, with no substantial change in constrained supply growth. Inventory levels dropped to historic lows by Q1 2025 after the quota system took effect and have since entered a normal fluctuation cycle. Under quota-based production, HFCs inventories are expected to remain low, supporting sustained improvement in market conditions for mainstream products like R32.
Downstream consumption growth and increasing substitution demand are expected to support steady demand improvement. According to industry data, refrigerant applications accounted for 100%, 70%, and 72% of downstream demand for R32, R125, and R134a in 2025, respectively. Since 2023, China's air conditioner and automobile production have maintained stable year-on-year growth. Ongoing subsidies and consumption stimulus policies in 2026 are likely to continue boosting sales in these sectors, driving refrigerant demand. China's ODS production quota for R22 has been reduced from 274,000 tons in 2018 to 146,000 tons in 2026. Stricter production limits from 2027 to 2030 will further reduce quotas until complete phase-out by 2030, potentially releasing substitution demand for third-generation refrigerants.
Recommended companies to watch include: Juhua Stock, Sanmei Stock, Yonghe Stock, Dongyue Group, and Haohua Technology. Risks include significant changes in quota policies, slower-than-expected demand recovery, and sharp fluctuations in raw material prices.