Scuttlebutt with ex-Chemours Senior executive

I met with a former senior employ of The chemours company to discuss & understand the landscape around Ref gases & FP. Here are the notes from our interaction, only edited for brevity. Key takeaways in bold text.

Context Setting: I am looking to understand the space around refrigerant gases (specifically class 2& 3 refrigerants like R32 & R125) & fluoropolymers like PVDF, PTFE, PFA, FKM. This is to understand more about India listed Fluoropolymer companies called Gujarat Fluorochemical & SRF.

Question1: Ref gases: From my understanding of the kigali agreement, most of the developed world is expected to phase out R32 & R125 manufacturing in next 5-10 years. Is that understanding correct? How is the situation today with respect to GLobal MNC Companies like chemours, Solvay, Arkema, Kureha & also with respect to chinese companies like Dongue, Shanghai 3F, zhonghao chenguang?

Answer1: In US: 2022 was when the implementation of kigali amendment started for HFC products, 400, 500 blends. The pure gases used in those blends are: r134a, r125, r32. Applications: refrigeration, chilling. Each company is Allocated a %. Every 2-3 years they bring their sales down during a phase down. The prices go up & demand has to adjust. Phase downs in europe & US underway right now. Supply went down, prices went up. The major ref gas is e134a, formerly used in mobile air conditioning, 400, 500 blends are also used, r32 & 125 mixed together. Major players: chemours, solvay, honeywell. Each of the major players produces 1 major HFC. So they all swap these gases so that they can make these blends. Consumer has 2 choices: pay more for HFC gases, or convert to HFO. Latest tech. R1234a. Arkema doesnt have it. Chemours has it. XP blends, XL blends. Mobile applications. There are no new planned capacity expansions for HFC. r125 is made by honeywell. r134a made by chemours. There are ADD on Chinese imports. These ADD are specific to china. No such duties on India. There are ways to circumvent ADD though: production plants in china, import to mexico. Quality is good of chinese players but not as good as american players. The ADD are Motivated by costs.

Question2: Non-fluorinated polymerization aid: We have seen a movement world wide against fluorinated polymerization aid (Or PFAS). Can you speak to the use of PFAS or lack of use of PFAS in fluoropolymer manufacturing in chemours, Arkema, Solvay etc.

Answer2: Chemours CEO had an interview in WSJ few days ago about this topic (‘Forever Chemicals’ Maker Defends Their Use, Says It Will Keep Producing Them – WSJ). PFAS is a range of perfluorinated chemicals. They are produced or used in production of FP. Actual FP is not PFAS. There should be no contamination in FP. Solvay, 3M, have used PFAS historically. They has not been very careful about how they used PFAS. They allowed trace amts of PFAS to escape. Leave their footprint in water & air. Does it make sense to ban FP to reduce use of PFAS? No. Calcium fluoride can be used as an alternative. Chemours has a plant in japan which uses these alternative actions to produce FP responsibly. 3M is so huge, FP was a small part. Hence, they could afford to exit this. Chemours, solvay, arkema cant afford to exit this space. If you use a water based process, you have to use PFAS. Solvay uses solvent based process now so they dont need to use PFAS. Chemours is trying to develop a process where we do not use PFAS. For now we have to use it. Solvay already has a solvent process. Chemours , dongue use water based so they need to use PFOA. (Sahil’s clarification: WSJ article linked talks about Chemours exiting PFAS by 2030. Shows GFL’s lead in this space)

Question 3. FKM: finds uses in rubber O-rings, gaskets , electrical connectors etc. What does the demand supply scenario look like for FKM & are any major Fluoropolymer players doing any capex for FKM anywhere in the world?

Answer3: It is a Fluoroelastomer. Made by chemours, solvay. Goes into Wires. Automotive applications. Electrical interconnections. Hydraulics, construction equipments. Fragmented applications. End Market is gonna grow 3-4 %. Mirroring GDP growth. FFKM is another one. Made by dupont. Daikin. Fewer players for FFKM. FFKM is fully fluorinated. It grows 4-6% a year. Most of applications are in Semicon plants, process equipment, aerospace applications. Chemically inert. FKM: 1.5 B $ / year. FFKM: 2B $ / year market. Capacity is for FKM & FFKM is sold out right now but no capex plans. Solvay FKM capacity is smaller than chemours.

Question 4. PVDF: In new age tech molecules like PVDF which have applications as PVDF binders in EV batteries & PVDF backfilms in solar panels can you please talk about the landscape?

Answer 4: PVDF is considered an inferior FP. Easier to make. Principle use is in paints & coatings. Newer applications: Binders for cathode, PVDF can stand high voltage & blend in metals. Backsheet for solar films. Tremendous supply, lots of announcements of supply in China. Reality is: only 3 players can make it with quality. Different chemistries involved. Arkema, Solvay, Kureha. Those are the only 3 which can make it at right quality to be used in binders. Arkema has plant in China making PVDF. Samsung, panasonic will only buy from Arkema, solvay, kureha. Tricks involved which we havent figured out. Technology limitations. Takes years for them to figure out. Chemours tried to figure out. Was unsuccessful to figure it out. Relative to PTFE felt like inferior product since simple to make (not the new age aapplications). The chemours bet is that PVDF binders might go away. We want to replace it with PTFE binders. Higher charge density using PTFE. Working on R&D for PTFE binders. Thats something we are working on. THough might take 2-3 years of R&D at least.

Question5: PTFE: Wanted to understand the placement of various global MNC players in this space. For example from what i know dongue is into more of low value PTFE but gujarat fluorochemical has 85% of their portfolio in high value added or niche grades that do not have much competition.

Answer5: FKM , PFA are higher performance FP. PTFE are like commodity. Lower grade molecules. Its not an attractive product. Different types of varieties: Powder based on Particle size. Chemours, Daikin, solvay, AGC, GFL has higher value products. 3M exited. Hard to predict who will pick up 3M. Will most likely be Picked up evenly.

Question6: PFA

Answer6: You can melt it. Form it into diff shapes. Who makes PFA: Chemours, Solvay makes PFA. High profitability. Completely sold out. Used in Semicon applications. Used to quote process equipment. Very pure product. Make it in a clean room. There is recurrent demand for PFA. You have to change it out every 2 years. Anyway you keep putting up new plants.

Question7: On Backward integration

Answer7: You mine fluorspar. Mexico. Dig up rock. React with sulphuric acid. Make HF. Make R22. Make TFE. So thats the process. Only player who is backward into Fluospar. Mexican player: Orbia. Have their own mines. Rest of them are buying fluorspar on open market. Most of them have their own HF plants. They make HF. Chemours & honeywell make their HF. Some of them buy HF as well. 3M did not have HF. Fluorspar is becoming more and more difficult to secure. Chance new company will become successful is less. (Sahil’s annotation: it shows GFL’s strategic thinking & execution). More and more challenges to find fluorspar. For non emissive applications you can set up new plants for making R22, R145a etc.

Question 8: Can you please talk about GFL?

Answer8: Interesting co. Aggressive in trying to expand capacity. Have not heard of issues with quality. In contrast, Dongue is perceived as party crasher, or lower quality. Chemours has considered opportunities to partner with GFL. GFL was not considered a large/big competitor for chemours. Different customer base.

Question 9: Can you explain the landscape for ADD & how arkema/solvay plants in China would be treated?

Answer9: ADD on china: If applied, Would apply to all companies plants, arkema Solvay plants as well if their plants are in china. Generally they produce polymers in China for local consumption. Solvay produces PVDF binders in kentucky. Why produce in Kentucky? Shipping costs are high if we ship from China. Besides, need to keep PVDF binders tech tightly so wouldnt produce it in China.

Disclaimer: Invested, biased. Transactions in last 30 days.