MikeWhitney wrote:
Rich Anderson wrote:
MikeWhitney wrote:
So what's up with R134a this year? $9 a can?!?!?
Per the SAE:
Quote:
There is a worldwide shortage of R134a, the non-flammable refrigerant used in almost all original equipment automotive A/C systems. The shortage is caused by limited production and increasing world demand, as countries such as India switch from R12. That switch was made in the U.S. and most other countries from 1991 to 1995. R134a prices have risen from as little as $80 for a 30-lb tank to up to $300 and more. Small cans, containing 12 oz, have more than doubled or tripled in price.
There is more to it than that, but that is good enough for most people not in the industry.
Gimme the MORE man!
OK. R134a, like most automotive use chemicals is a commodity. Everyone who uses it tries to get it to be as fixed an expense as possible. Long term contracts for supply are the norm so that users (distributors and automakers mainly) can lock in a fixed cost for the product and know their production or supply expenditure as far in advance as possible. So, when the demand goes up, there is little incentive to increase supply as profit margins will be dictated, for the most part, by the existing contracts. Conversely, sitting back and not increasing capacity guarantees the supplier that by the end of the current contracts the prices will have escalated and they will be able to actually maintain a cost (inflation and other) adjusted margin or even increase it. Price adjustments for commodities are VERY difficult to get. It is a risk because there is the danger of other suppliers taking away your contracts since you genuinely do not have capacity to meet increases nor can you go after new business.
R134a is pricing more complex than that of most automotive chemical commodities, however, and the simple explanation rendered in the above paragraph is not sufficient to explain the current situation. The manufacture of refrigerant is dominated by EI du Pont de Nemours. What they decide to do dictates the American (and I believe the global) market for R134a. With a lack of strong competition, the dangers of market share erosion from lack of investment in capacity is minimized. Furthermore, I believe that
the process of making R134a is complex and requires significant physical infrastructure to create, so it is unlikely that competitors will surface and take away customers before a response can be made. Compounding the situation is the lack of alternatives to R134a. You either have R134a, or you don't have air conditioning. A captive market means that there is even less danger of losing customers.
Basically, what it boils down to is that there is absolutely no reason for the manufacturer not to make your R134a cost $9 a can.
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