Gujarat Fluorochemicals: A hidden fluorine story

Donald · January 24, 2023, 5:50pm

2500 Cr investment in FY23 and FY24 - More granular Capex details here from Indian Chemical News

There is perhaps more “Opportunity” in the constantly evolving Supply/Demand situation for a nimble player like Gujarat Fluorochem (?), provided we can strive to understand the Industry/BusinessCanvas better!

Selected Excerpts. Not sure these have been shared publicly before (?)

Cyclicality concerns (in 1-2 years) in some Key GFL products like LiPF6 and PVDF are valid. Equally there are big opportunities in LiFSI, HFPs and Refrigerants (?).
One direction we could work on understanding/establishing *Changes" global supply/demand scenarios for Gujarat Fluorochem Product Pipeline.

R-22 >> HFP >>High performance FP route products including FKM, FEP, PFA, HFE, PFPE, R127
LiPF6 supply glut expected in 2 years vs LiFSI ramp up
Industrial PVDF glut in 2 years vs battery grade PVDF
Domestic Supply cornering vs Exports (especially new FPs, battery chemicals)
China+1 Competitive Position for US and EU markets, Non-China
Refrigerants biggest Opportunity in next 2-3 years (post dec 2023 quota freeze) (?)
Timeline for starting on Class III Refrigerants like R-32 and R 410A critical for Gujarat Fluorochem as Quotas will be decided based on production achieved till Dec '23 end? GFL is unlikely to have production ramp up/dumping route scope available like the Chinese have? vs Country Quotas ?
Easy/Difficult Fungibility of Capacities (between HFPs, other FPs, Refrigerant classes). This is a key understanding required.

If we all can put energies into taking this forward, I think GFL Q3FY23 Concall interaction/ questioning can be qualitatively that much better.

Study Direction 1
HFP: the rising star of fluorine chemicals (Global Supply Deficit situation 2023-2025 (?)
HFP (hexafluoropropylene), produced from pyrolysis reaction of R22 (Class II refrigerant), is the
most important monomer within the fluorine chemical family.

HFP is one of the building blocks of high-performance materials in the fluorochemical space. In terms of total number of end products, HFP triumphs among fluorine chemical monomers. Leading fluorochemical companies in the world including 3M, Dupont and Daikin have specialized in HFP derivative product R&D.

Different from other fluorine chemicals like PVDF and LiPF6 which are downstream products, HFP is a fluoro-monomer which is used as an intermediary for the production of multiple high performance
fluoropolymers including PFA (perfluoro-alkoxy polymer) for proton exchange membrane of hydrogen fuel cells, HFE (hydro-fluoro-ether) for semiconductor chillers and IDC immersion coolants, and FKM (fluoro-elastomers) which is a type of special rubber used in sealing and piping for aerospace and high-end vehicles.

Chinese companies are new to the field of HFP derivatives?
Gujarat Fluorochem key (HFP and TFE) derivative products are FKM, FEP and PFA

Production for R22 as a Class II refrigerant is likely to drop to 32.5% of its respective baseline in 2025E, from 65% level currently. Reduction in supply of refrigerants should increase the average sales price (ASP) for R22 for both feedstock and refrigerant uses, offering support for future HFP ASP increases (?)

Recent changes in ASPs are a great indication of the supply situation. Both LiPF6 and PVDF are showing downward pressure while price for HFP stays resilient. [Source: Credit Suisse Fluorochemicals Report 6 Dec, 2022]

China+1 may drive significant change non-china (US/EU/India) and govt discounting and ADDs may keep coming (?)

Study Direction 2
Refrigerants: Class III bigger Opportunity (?)

Most of battery Energy Storage Systems (ESS) adopt Class III refrigerants such as R32 or R410a (blended refrigerant of R32 and R125). Total consumption of refrigerants will increase with respect to rising installation of renewable capacity and increasing penetration of ESS incorporation in the installed capacities of renewables.

Total new capacities of battery ESS is growing exponentially at 82% CAGR in 2022-2025E and 38% in 2025-2030E which will lead to drastic increase in demand for Class III refrigerants. Demand from ESS thermal management might be the leading driver in refrigerant consumption for the upcoming years (?)

Refrigerants Classification

Likely 2023-2025 Cyclicality (Surplus/Deficit) Picture (?)
LiPF6 ↓↓
LiFSI ↑↑
PVDF ↓
Refrigerants ↑↑
FKM/PTFE/PFA ↑

Disclosure: Invested

Donald · January 25, 2023, 9:34pm

Wanted a quick grip on differences in data-points/historical approach/investments on R32/Refrigerant Gases between the 3 major players in India.

Just some fun (productivity) stuff - may NOT be extremely relevant in our current Quest, but useful.
Attached “R32” document - compiled by me @needl.ai

R32_Navin_SRF_GFL-Needl.ai.pdf (3.0 MB)

Mostly auto-excerpts from Concall Transcripts, Investor presentations, Annual Reports
What was surprising was that Needl got me (very relevant) excerpts from websites like Hindu Business Line as well. Encouraged by this, tomorrow I am sure to add permissions (at Needle.ai) for my subscriptions from ET Prime, Bloomberg, and other places.

Some who actually download this document to check - will find that it showed results (for R32) from across my email, Drives, EverNote - going back to even 2016, which I did not even suspect - they existed. (Needl also does WA integration/extraction too - think my WA sync has gone wrong, so WA results haven’t come in)

Felt the Power of an Aggregated/Unified Data Repository !!

By the way guys, our own @pratyushmittal and @ayushmit have quietly provided a “barebones” facility (from exchange filed docs) at Screener.in too. Check that out at
https://www.screener.in/full-text-search/?q=“R32”

@KuntalShah - love the current version; have started using, and am pretty excited to try more. Saved me huge amounts of time - I would have otherwise taken to come to grips with R32 data points differences/approach/investments between fluorine players in India

Anant · January 27, 2023, 7:11am

Revoking of 26.5% of CVD on granular PTFE resin: US Department of Commerce had placed 26.5% CVD on granular PTFE imports from India. The following are the timelines from the attached document:

On January 27, 2021, Daikin filed antidumping and countervailing duty petitions on imports of granular PTFE resin from India and Russia. Daikin Antidumping and Countervailing Duty Petitions, P.R. 1.

On February 23, 2021, Commerce initiated a countervailing duty investigation of imports of this product during a time period

Commerce issued a “Preliminary Determination” for the investigation on July 6, 2021

Commerce issued a countervailing duty order on PTFE resin from India. Granular Polytetrafluoroethylene Resin From India and the Russian Federation: Countervailing Duty Orders, 87 Fed. Reg. 14,509 (Int’l Trade Admin. Mar. 15, 2022).

The total import of this from India was between $22 mn, $31 mn, $25 mn as per these links in CY 18, 19, 20 respectively. CY 20 data is for India/Russia/China combined but as per prior data most of it must be coming from India

usa anti dumping gfl revoked.pdf (556.6 KB)

bhawinn · January 27, 2023, 1:46pm

Announced result date and,
I think the company is planning to issue bonds or debentures through private placement.

sahil_vi · January 29, 2023, 5:32pm

From my reading until now, the highest incremental value creation in next 2-3 years will come from PVDF. So i want to analyze PVDF in this post as exhaustively as possible.

The molecule

This is the molecule. Polyvinylidene fluoride or polyvinylidene (PV) difluoride (DF) is a highly non-reactive thermoplastic fluoropolymer produced by the polymerization of vinylidene difluoride (VDF).

PVDF is sold under many brand names including KF (Kureha), Hylar (Solvay), Kynar (Arkema) and Solef (Solvay).

The word piezoelectricity means electricity resulting from pressure and latent heat. Piezoelectricity is one of the critical properties of PVDF which make it applicable in batteries.

https://www.ncbi.nlm.nih.gov/pmc/articles/PMC7570857/#:~:text=PVDF%20is%20one%20of%20the,NGs%20[14%2C15].

PVDF has also been subjected to high-heat experiments to test its thermal stability. PVDF was held for 10 years at 302 °F (150 °C), measurements indicated no thermal or oxidative breakdown occurred. This also makes it ideal for EV battery applications. PVDF is a standard binder material used in the production of composite electrodes for lithium-ion batteries, PVDF is used because it is chemically inert over the potential range used and does not react with the electrolyte or lithium.

https://hal.science/hal-02557122/file/Ordonez2016.pdf is an interesting read to understand lithium batteries. PVDF is used as binder for both cathode & anode:

The longevity of Li batteries is guaranteed by the PVDF’s chemical resistance in the extremely harsh surroundings of the lithium-ion batteries, which contains a large amount of lithium salts. PVDF is also used as a dispersion agent in Lithium ion batteries to evenly distribute the active electrode material on the battery’s current collector, leading to improved battery performance. A dispersion agent in the context of Lithium ion batteries refers to a material that is added to the electrode mixture to distribute the active material evenly and prevent clumping or aggregation. The dispersion agent improves the uniformity of the electrode mixture and enhances the overall performance of the battery by ensuring a more efficient use of the active material and better electrical conductivity. In the context of Lithium ion batteries, the active material refers to the substance that participates in the electrochemical reaction taking place in the battery. The active material is typically a metal oxide or a polymeric material and can be either the cathode or the anode material. The active material determines the energy and power density of the battery and its overall performance.

Value chain for GFL

Let us also understand how GFL produces PVDF.

GFL goes from VCM => VDC => R142b => VDF => PVDF. This level of backward integration is one of the strong competitive positioning GFL has.

According to this market research: Polyvinylidene Fluoride (PVDF) Market - Growth, Trends,

The global PVDF market is highly consolidated. The top 4 players account have a marketshare of around 90% in 2021. The top players are: Arkema, Solvay, Kureha, & Dyneon LLC (3M Company).

According to this: https://www.reportlinker.com/p06126846/Polyvinylidene-Fluoride-PVDF-Market-Growth-Trends-COVID-19-Impact-and-Forecasts.html?utm_source=GNW the PVDF market is growing at 20% CAGR in next 5 years. According to Global Polyvinylidene Fluoride (PVDF) Market Overview 2022: the asian PVDF maket will grow at 16%. Overall, we understand that this is a fast growing global market, primarily due to application of PVDF as binder for electrodes in batteries.

Competitor Analysis

While @rupeshtatiya sir’s post talks about technical requirements required from PVDF binders here:

I wanted to focus on the capacities, capex plans & extent of backward integration to gauge the extent of competitive advantage if any which Gujarat Fluoro might hope to enjoy.

Arkema

Sources:

Arkema has announced several capacity expansion projects in China & France

Arkema reports PVDF under brand Kynar under the ADVANCED MATERIALS segment. This segment has 22% EBITDA margins & 3B Euro sales. This segment will be 35-40% of arkema sales in 2024 so is important to them.

They expanded PVDF capacities by 50% in 2021 in both China & France

Arkema is also working on PVDF binders which consume 20% less carbon in the manufacturing process & are those more environmentally friendly.

In this segment, Arkema considers itself to be market leader & expects 10% annual growth. This means that their 50% capacity expansion should probably be good for next 4-5 years or so. Given that they have a plant in France, we have to very closely understand why any european customer would prefer Gujarat fluoro’s PVDF over Arkema’s which has been produced in France & is also environmentally sustainable.
We know from https://www.arkema.com/global/en/products/product-finder/product/fluorochemicals/Foranext-for-polymers/
that arkema manufactures HCFC-142b so it is at least partially backward integrated for sure.

One thing to note here is that arkema did close its R134a plant in 2016.

This means that it is possible that they might find it difficult to expand R142b capacities too (need to work more to validate or invalidate this).
A 50% expansion of Arkema’s capacity in Pierre-Bénite, France, is due on line early in 2023. I havent been able to find Arkema’s total PVDF capacities.

Solvay

Solvay is also doing capacity expansion for PVDF.

Solvay will in fact have largest PVDF capacities in Europe at 35,000 ton (doing capacity expansion for 300 M euro). Solvay is also doubling capacity in china: Solvay doubles PVDF capacity in China ahead of schedule to meet growing demand for EV batteries
Solvay concall:

Solvay is Also targeting NA market. Solvay also has access to Fluorspar mines similar to GFL. Solvay’s complex in France is fully integrated.
Solvay is also going to produce PVDF in North America

I also learned why these cos do not disclose capacities. They consider it to be a competitive advantage/secret (which makes sense)

Their investments in USA will make them the undisputed leader for USA.

On pricing they basically point out that they are able to sustain margins & pass cost increases to customers

3M

I guess this is the one with most recent news. As @spatel sir posted:

3M will stop manufacturing all fluoropolymers:

3M will discontinue manufacturing all fluoropolymers, fluorinated fluids, and PFAS-based additive products. We will help facilitate an orderly transition for customers. 3M intends to fulfill current contractual obligations during the transition period.

The interesting thing i learned while studying 3M’s production stop is that it was based on " Shareholders have also called for production of the chemicals to stop. Investors managing $8 trillion in assets earlier this year wrote to 54 companies urging them to phase out their use." Which made me curious about which 54 companies investors asked to stop producing PFAS. We already know from sandeep sir’s post that Gujarat Fluoro does not / will not use PFAS in making its FP.I could not find 3M’s pvdf capacity although we do know that 3M sells PVDF: https://www.3m.com/3M/en_US/p/d/b40070223/

This would result in some supply vaccum. However given that 3M plants are primarily in USA, given that solvay intends to become largest PVDF manufacturer in USA, 3m’s loss might be solvay’s gain & GFL might only benefit indirectly through a demand-supply mismatch, if any.

Kureha

Kureha had 11000 ton PVDF capacity. Kureha is also increasing (tripling) PVDF capacities in China.
https://www.kureha.co.jp/en/newsrelease/docs/20210720en.pdf with a focus on battery binders for LiB.
PVDF sales has been supporting kureha’s sales growth

PVDF is highly profitable for kureha

Kureha reports this under the advanced plastics segment & it is growing quite fast, also improving overall profitability for kureha

Kureha will go 3000 cr or so of PVDF sales in FY22. Economic slowdown remains a key risk specially since all PVDF makers are expanding capacities so aggresively.

Overall conclusions

In my assessment it might be difficult for GFL to break into USA due to localization requirements which incentivize local production heavily. The Inflation Reduction Act (IRA) requires that EV manufacturers source 40% of critical battery minerals domestically or with free trade partners by 2024 . That percentage increases to 80% in 2026. And mines and battery material processing plants don’t come on at the flip of a switch. We know that PVDF binders are not a large part of the value of the battery but solvay has 1st mover advantage in USA so might be difficult for GFL to break through in NA market.
Demand supply situation seems delicately balanced. All leading players understand the explosion of demand & most are setting up factories in China. Even if production stops in europe, it is not clear why or how GFL might be able to compete successfully against Solvay, Kureha or Arkema’s China plants given low power costs in China (power is one of largest raw material for FP).
Perhaps In my understanding the best market GFL might be able to target is the domestic market which supported by high cost structure of European plants & some form of ADD on chinese plants, GFL might find itself in a near monopoly position for Domestic consumption. This space needs to be watched closely to see who is setting up lithium ion battery manufacturing in india & how.

Disclaimer: have a small position, but to be honest this is one of toughest companies to analyze & forecast for, each molecule is like a large industry in & of itself. I am not very confident GFL can create value without too many variables falling into the right place:

ADD on chinese imports
Domestic manufacturing picking up
Realizations remaining favorable vs non-ADD imports
Need to study a lot more to understand the value creation better.
Ps: The reason i prioritised pvdf is that it seems the largest & fastest growing high realisation molecule. LiPF6 can be larger but also has threat of substitution by lifsi. PFA is much smaller market size. Ptfe is a slow growing market.

ram1984 · January 29, 2023, 5:32pm

Looks like the price of PCTFE and PFA continues to rise. Chemours and Daikin seems to have been increasing the prices for some grades of these Fluorochems. Need more evidence to confirm this further.

Afton Plastics who processes these resins further downstream into rods, sheets etc. seems to have taken 20% hike when processed using Daikin’s certain grade in short term.

Vineet_Dubey · January 31, 2023, 12:41am

Hello VP members
Have been reading a lot on VP since last month & this is my first post in the forum.
I am extremely grateful to the forum and members for the learning I have had in such short duration and the breadth and depth of analysis that takes place on a thread is amazing to say the very least.
Also, I am relatively new to the world of self investing (since 2020) so forgive my ignorance on otherwise obvious matters.

Coming to the company, a lot has already been discussed in the thread covering several dimensions of the company and I will try to limit my discussion to the points where I am unable to understand what is actually happening. Senior VP members may please delete the post if they feel that there is a lot of repeatability and little value addition.

It is clear that the company makes a range of products (caustic, chloromethanes, Ref gas, PTFE, FPs & FSCs) which are mostly fluorine related chemicals & polymers. A significant portion (~50%) of the revenue comes from exports to US and Europe. Originally the company was mainly into ref. gases & chemicals. Later it ventured into PTFE and from 2007 into FPs. As has been shown by @Anant sir at the start of the thread as one of the key concerns, this followed a period of roughly 10y where significant CapEx was done for not so impressive sales growth. However, as a chemical engineer working in an even complex (although unrelated) industry, I know that for a greenfield project it can easily take anywhere between 3 y to 5y for first product routing from the moment the first dime of capex is spent on the project. Fine tuning of the product takes few more years.

After that initial period of slow growth, the company picked up its pace & since then the R&D has churned out product after product that have turned out to be very profitable for the company. From the chart below it can be seen that the company has had both strategic intent and ability to continue to develop products that make sales and further increase future sales potential

Note: other products include FEP, FKM, PFA, PVDF & FSCs.

With an intent of Identifying new product lines to increase future sales potential the company planned fresh capex (600 cr FY22, 1150 cr FY23 & 1000 cr FY24) towards the “new age products” which are battery chemicals (LiPF6, PVDF for cathode binder) & PVDF for solar panel back films. Some of that (~300 cr) will be used for backward integration. Further, technology development for PEM & some other products is in progress but it will take time & lets not get into that at this point.

Most of this is already known as it has been discussed in the thread in quite detail. However, this background was necessary for the question i want to ask and the answer to which I have but am unsure of and want the valuable opinion of VP members

What i want to understand is what will make the “new age products” sell. Those for which the capex is being done and which are being identified as the next lever of growth for 5-10y.

As @sahil_vi sir mentioned a few posts back that it might be difficult for GFL to break into USA due to localization requirements and also in europe as there are bigger players with better products available.
The answer can not be “technically superior” product as again due to my chemical industry background i know that most of the chemical research work (industrial or otherwise) in India is derivative in nature. Our production plant & R&D labs are set up by foreign licensors and the tech is sometimes (or mostly?) outdated before it reaches us.
Therefore I have no doubt in believing that Arkema (for eg) will almost always have a better product that GFL for the similar use scenario (at what cost though?).
GFL itself has said in the concalls that it was never competing with china (overlap with china was 10-15% of generic grade PTFE only) and it was seeing significant potential in sales of battery chemicals as other western major players are not expanding capacity which is not entirely true (as a lot of them are expanding capacities. See @sahil_vi sir post). The market in india will only come after H2CY24 -2025

Could the answer be that the newly formed capacity of all companies combined will still be lower than the demand? That can be a scenario where GFL can get its share of the EV market. However is it really possible for us to predict the future demand to such accuracy as to map it against the capacities coming up. Maybe for someone who is working in the industry and having in depth knowledge. However most of these people will be working at very high posts in one of these companies itself and will be inaccessible to an average investor like me.

It is at this point that I realize that the complexity in analyzing GFL as a potential investment lies in my inability to properly understand the sales organization of the company and its sector.

So what has made me invest in GFL even after all the doubts i have just listed (& some more)

I believe that even today the company has products (exclluding new age products) that have sales potential for several years to come. Considering that additional capacities are coming in these new products; the company can continue to utilize the current sales channel (which i have no idea about however sales are still occuring).
I believe that these new age products (battery chemicals, PVDF, FSCs) will provide additional sales and not only in india but in US and Europe also. Their product may be inferior to solvay’s or arkema’s latest invention however it will still get the job done. Not everyone (customer) is looking for the best product; some are looking to cut the costs and with huge margins (>30%), low labor costs and less severe environment control norms, GFL can provide products at cheaper costs (i may be wrong and more financial analysis may be required.) The products may sell for entirely different reasons which I am not aware of. But I think the management has done its homework before foraying into these new products.
Even in the past, GFL has been able to capture market share for its products in US & EU markets even though western & chinese players were present. Understanding its limitations, it steered away from direct competition with china. Initially GFL had generic PTFE but gradually shifted to 60:40 mix of value added grade to generic realizing that china had huge capacities for commodity grade PTFE. How it managed to capture market share from western players i am not sure. Might be cost or better sales service or something entirely else but it did manage to carve out a piece for itself. I am betting that even in the future, it will be able to do so provided management does not make a blunder.
Management has almost always been able to walk the talk in concalls and ARs. Most capex implementations since demerger have been on time (except FSCs capacity expansion where in the project was initially delayed from target of Q4FY22 to Q2FY23 and was further delayed due to fire incident). Management has reasonably good cost analysis and accounting controls for individual products (they were quick to identify that 2 of the 11 FSCs developed were not going to give enough margin and decided to stop the production). They have been successfully able to identify future growth products and have shown timely commercialization of products (note that commercial channels are vaguely established even before production of new products start).

I believe that as long as the current management is present and a blunder is not committed through a fault of their own, plans are in place for decent amount of growth for several years. The price has corrected the previous highs of ~4000 and the valuations have become attractive (although not as attractive as were 2 y back when the thread was started) & it is a good company to hold for mid-long term.

Comments and criticism are highly solicited.

Disclosure: Invested. Transaction in last 30 days
Please do your own due diligence before investing

Worldlywiseinvestors · January 31, 2023, 10:49am

From SRF concall:- Decides to enter FKM, PVDF, FEP

Fluorochemical business (ref gas+polymers)- strong traction of reg gas in domestic business.

Outlook for domestic demand of HFC’s in India and US remains strong. PTFE plant slightly delayed due to logistics issue.

PVDF, Fep, FKM space we are going to enter at 595 crore capex. In 24months project will be commissioned. Used in EV batteries, Solar back sheet, auto etc etc.

Announced 1900 crores of capex in chemical business in last 9 months. (Capex for new age fluoropolymers is 595 crore)

Capex comes on stream in 24 months for new age fluoropolymers and post that customer approvals will take time. Points to market vacuum the at exists. Possibly due to Demand outpacing the supply in New age fluoropolymers. Gives a more complete perspective with srf also announcing a smaller capacity in the space

Capacity will be at4500 tonnes per annum for new age fluoropolymers vs 18ktpa for Gfl post expansion.

Seems like a market where Gfl has taken the lead and western players are suffering from higher Rm costs or inability to completely fulfill the demand as capex takes 2-3 years to complete. Given GFL has set up a large R142 B plant, expansion will be much shorter in time- My thoughts

Srf capacity moreover will be with PFAS tech and GFL has already develop non pfas tech to manufacture.

Srf will have to go through pain period of customer approvals and long gestation of new age fluoropolymers just like what GFL had to go through

In commodity grade Ptfe, Srf is expecting ramp up faster as in a past management meet they indicated that is majorly for domestic markets.

Thus,

Assuming both GFL and Srf hit full capacity utilisation on expanded capacities.

Gfl will be doing revenue of 4500+ crores in both new age fluoropolymers and Ptfe on current realisations.

Srf will be doing 600 crore in Ptfe and 500-550 in new age fluoropolymers.

Srf investments just confirm the thesis for GFL and make it much more solid in my view.

As GfL has more grades and has spent more time in Learning curve here, time period will be shorter vs SRF.

Disc: Invested in Kama hold co and Gujarat fluoro.

Full concall notes:- posting if any references can be taken for GFL fluoropolymers business and ref gas realisations.

SRF Concall: Q3FY23 &9M Concall

Technical textile and Packaging business witnessing a difficult environment. Chemical business is doing well.
Rs 3.6 of dividend approved this Quarter. Similar dividend was announced last Quarter.
Spechem delivered a record performance due to new products being introduced and ramp up of MPP4 at Dahej.
High level of engagement with global innovators remains and pharma intermediate plant going low. Capex announced worth more than 1000+ crores in last 2 Q’s in this division.
All projects will go live within 1 year in spechem.
Fluorochemical business (ref gas+polymers)- strong traction of reg gas in domestic business.
Outlook for domestic demand of HFC’s in India and US remains strong. PTFE plant slightly delayed due to logistics issue.
PVDF, Fep, FKM space we are going to enter at 595 crore capex. In 24months project will be commissioned.
Announced 1900 crores of capex in chemical business in last 9 months.
New Timeline of commissioning for PTFE by the end of this FY or early in April it will be commissioned. In next 6 months it will be ramped up very swiftly.
Supply outstrips demand in Packaging business. Going through headwinds.
Overall capacity: 4500 tonnes or so will be total capacity of new age fluoropolymers. Technology will be using Fluorosurfactants.
Majority of the margins has been led by the speciality chemicals space. There is a pricing benefit that has come in within spechem as contracts got renewed. Combination of all.
Intent in chemical business is to go into higher value added products.
Margin expansion might be sustained in chemical business. As of now looks in good shape.
Next Quarter will be seasonally stronger for the chemical business.
Will be fully integrated in Fluoropolymers. Customer acquisition: is probably still some way down the line. Once the product is in place only then you can talk about customer acquisition.
Majority of chemical capex will commercialise in H1FY24 and H2FY24.
Seeing strong traction in ref gases in domestic market in Q4 and Q1.
Key customers in agro are global innovators.
Speciality fluoropolymers: 25-28% IRR we are expecting. 4 year Payback. Asset turns to be 0.8-1.2x. This is a strategic investment. Will help to cater to larger fluorocarbon space.
2800-3000 crore capex is what they are targeting going forward.

EDIT

Technology that SRF is using for New age fluoropolymers is also PFOA free. I heard the call over and over again. And broker notes confirmed the same.

Anant · January 31, 2023, 11:52am

I agree with you that most of the Chemical research in India is derivative in nature but this does not imply that Indian companies once having developed their process in non patented products cannot compete with the best of the world. There are multiple examples like Divis/Laurus/Deepak Nitrite etc. who have all done very well. The product is at par with the best and scale/operating costs etc. ensure business continuity. If we look at China one can clearly see significant growth in R&D, from being a mass producer of low complexity high volume chemicals Chinese company today are at par with their Western counterparts and far exceeds their volume. I think Indian companies too would take a similar path.

I doubt that ’ Arkema (for eg) will almost always have a better product’ and the answer to this is in the development of FP without using PFAS of concern. For example take a look at the response from GFL vs other players. Although the response was voluntary GFL/Chemours responded and the other didn’t. Chemours response seemed quite vague too.

Very difficult to answer this precisely but in general one could see significant demand supply gaps in most FP and PTFE. Further with 3M going out and Solvay’s Italy plant shutting down due to usage of PFAS of concern should help. Setting up FP capacities which have HFCs as RM will be very difficult in the West. The choices they have are limited. Do understand that GFL has been long in the markets developed hundreds of grades of various FPs and does carry significant experience. As far as battery chemicals are concerned what GFL does is yet to be seen but they have said multiple times they are initially looking at international markets.

Solvay to discontinue Algoflon® PTFE and Hyflon® perfluoropolymers made in Italy.

All investments carry risk, uncertainty, lack of clarity, probability etc. As investors we always deal with a limited understanding and use various models/patterns to extrpolate from past to come up with our own thesis. Even I don’t understand multiple functions including the sales organization at GFL.

spatel · February 1, 2023, 2:53am

Let me elaborate on the PFAS RFI point touched by Anant in the previous post.

The Request for information (here) was from the Office of Science and Technology Policy (OSTP), department of the United States government. Published in July 2022. PFAS related. Response was voluntary. It has 8 questions (on page #2). Commenters can respond to one or many questions.

GFL responded to one of the important question #4. Response here. Ref: Page # 120.

No response from Solvay, Daikin, Arkema and the others. And Chemours responded to the question #7.

Snippet of the ChemService report (here) referred in the GFL response. Section 2.4 has an extensive detailed information about FP uses; worth reading in quality time.

sahil_vi · February 4, 2023, 1:25pm

Kigali Ammendment

The Kigali Amendment to the Montreal Protocol is an international agreement to reduce the consumption & production of hydrofluorocarbons (HFCs). It is a legally binding agreement & has been signed by 190+ countries, All Major countries included.

Many of the Ref Gases which serve as feedstock for FP (R22, R32, R125, R142a) are HFCs. Let us analyze how each Major geography is treating Kigali ammendment. This will have rammifications on 2 aspect of GFL business:

Ref gas prices might go up as supply is reduced
Integrated FP players might continue to do well due to structural reduction in supply of Ref gases.

Why production & consumption caps?

While HFCs are not damaging ozone layer, their green house warning potential is 12000-14000 times that of CO2.

Broad Picture

Src: Countries adopt Kigali amendment to phase down HFCs
A2 is countries like Europe, USA
A5 Group 2 is countries like India
A5 Group 1 is countries like China.
We can see that developed world is reducing capacities much more aggressively than Developing world. Even in that bucket, India would reduce much more slowly than China.

India

India ratified in 2021 the Kigali ammendment:

Per this document:

India will complete its phase down of HFCs in 4 steps from 2032 onwards 
with cumulative reduction of 10% in 2032, 20% in 2037, 30% in 2042 and 85% in 2047.

This means, that indian producers can produce (as allowed by international law) fairly significant volume of HFC over next 15-20 years at least.

China

Compared to this China has planned more aggresive cuts in HFC production

Countries like China will have to cap their HFC use by 2024, while even poorer countries like India get until 2028

According to what I read in a report which is behind a paywall, China would cut HGC production in 2023 by 10% & then by 10% in 2024. China would reach 50% production capacity cuts by 2042, a much steeper production cut than India. This would have 2 effects. Incremental production & demand could shift to India (for both Ref Gases & FP).

Importantly Countries like China will have to cap their HFC use by 2024, while even poorer countries like India get until 2028. (From what I read in the report China is actually capping production to 2022 levels & reducing in 2023 & 2024). Meaning, Indian players like SRF, GFL can put up more capacities over next 5 years as they create & capture the market.

Developed world

While europe ratified & implemented Kigali amendment immediately (2016) so has already reduced capacities by > 50% for HFCs,

USA only ratified the Kigali amendment in 2022:

This means, that USA will have to ramp down production aggressively now onwards.

These revised targets have used a similar methodology to those behind plans to introduce a 10 per cent phasedown of HFCs up to 2023.
The US Government has committed via its American Innovation and Manufacturing (AIM) Act to reduce the production and consumption of HFCs by 85 per cent of baseline levels from 2036.

US EPA proposes schedule for major HFC reduction plan - Refrigeration and Air Conditioning.

Note that a similar phasedown also happened for generation 2 Ref gases (HCFC: Hydro Chloro Fluoro Carbons). The demand for HFC is not going anywhere because HFO (generation 4 ref gases) is not at the level of efficiency where it can replace HFCs.

The refrigerant-side overall heat transfer coefficient of HFO-1234yf is 18–21% lower than that of HFC-134a in the mini-channel heat exchanger in the same operating conditions

Source: https://www.sciencedirect.com/science/article/abs/pii/S1359431116316301

R 1234YF ah HFO has price of around 10,000 / 5 KG

Vs that, check R32

Just check the price difference. It’ll take a while before HFO can substitute for HFC due to both efficiency & cost being much lower & higher respectively.

One open question

Since Kigali amendment talks about cutting down both production & consumption , what is not clear to me is whether it ok to produce it for non-emissive captive consumption like forward integration into FP like GFL does & SRF might do, or is that also to be phased out (what happens to FP production then? Would it have to be done via some other non-Ref-gas route?)

Conclusion

The demand supply scenario for Ref gas looks quite interesting. I can understand now why donald sir said this in his post:

In the FP space, each molecule might follow its own demand supply scenario (like we have discussed earlier, PVDF might see excess supply like others like FKM might see excess demand) but fully integrated players will do better than ones who convert Ref Gas into FP since it would incrementally become difficult to produce Ref Gases specially stand alone.

Disclaimer: Same as before.

Worldlywiseinvestors · February 7, 2023, 12:52pm

Gujarat Fluorochem Concall Q3FY23

Net debt to Equity ratio has reduced to 0.21 times.

New age fluoropolymers to provide growth in the near term.

Structured business into 3 verticals:-

Bulk chemicals

Fluoropolymers

Fluorochemicals : includes ref has & spechem.

Expecting to see growth in Fluorochemicals. Volumes In fluoropolymers were impacted by holiday season in Us and Europe. Expecting growth in fluoropolymers in next few Quarters.

Lipsf6 approval cycle, expecting approvals in next 3 Quarters. Intend to expand battery chemical Pf to include other battery chemicals.

Looking at Capex of 2500 crore this FY and next FY. Expect upward revision in capex plans.

Received 623 crores from Inox winds. Advances have been paid adjusted for wind power capacity inox winds will commission for GFL.

On being PFAS Free:- small fluoridated molecule that tend to be Bio Accumualtive and it tends to get into water stream & Human Tissue. Fluoropolymers aren’t bio accumulative. In process of manufacturing, certain fluoridated surfactants are used.

GFL has developed technology to make Fluoropolymers without Fluoropolymerization aid. No challenge for us.

Insulated to commodity price variation to intermediate parts/chemicals due to backward integration.

On corporate Guarantees:- 2/3rd of advances given back. To remove all Guarantees by the end next Financial Year.

Ptfe and LIpf6 expansion:- plan in PTFe is to first get full capacity utilisation and only then go for debottlenecking or add more capacity.
Lipf6 is the starting point for us to get into battery chemicals. Eventually plan is to get into Electrolyte.

New capacities for fluoropolymers will be 1400-1500 tonnes per month. Currently at 12k tonnes per annum. In next couple of Quarters will be able to get the full benefits of capacity addition. Capacity goes up and down dependent about the grade we make. Eg:- in specialised grades, capacity utilisation can fall to 60-65%.

Asset turns in new age fluoropolymers will be anywhere between 1.5 to 2.0x. Capital expend here is 500 crores for current financial year.

When capacities are added, customers have to be qualified and only then utilisation inches up. There is a time lag as this isn’t like a commodity(caustic).

1500 Tonnes per month capacity will be fully utilised by FY24 in new age fluoropolymers. Capex for new age fluoropolymers is 500-550 crores out of total 1600 announced.

Power plant (20MW) will be live by Q1FY24. Will be cheaper than conventional energy like coal or gas.

Power cost savings will be around 40 crores per annum.

On PFA:- have adequate availability of TfE. Expanding capacities for PFA and developing grades for high purity Semiconductor application. There are different grades like high purity and ultra high purity. Will take about 3 Quarters to develop. Will move up the grades eventually.

Margins won’t get impacted overall inspite of Lipf6 prices falling. As we factored in lower prices while putting up the projects. For lithium procurement, will be having long term arrangement soon.

R142b doesn’t have any ref gas application. Only application is to be used as VDF.

For entire production of fluoropolymers will go PFAS free by the end of this calendar year. This technology is patented and proprietary to us. We are the first company to globally to announce this technology. Took 5 years to perfect this technology.

Developing PEM (proton exchange membrane) for both electrolyser and electrolyte. Will take 1 year.

Looking at 20-25% growth. Don’t give guidance as a policy.

Expect pricing of Ptfe to go up as players vacate the market.

Pvdf battery grade under advanced stages of approvals. Within 1-2 Quarters the business will start.

Grades of all fluoropolymers will be more than 100. Capex for new age fluoropolymers next FY will be lower than this year capex of 500-550 crores. Pvdf pricing has corrected in different segments. There is a grade to grade variation. For us, we haven’t seen a correction QoQ.

Only lithium carbonate we will be acquiring from outside.

Disc:- same as before.

Anant · February 8, 2023, 7:38am

The key skepticism in GFL story has been around margins. The skepticism is well placed as we have over the years and specifically in chem/agchem/pharma seen growth and margins fluctuate significantly. We have seen multiple companies eulogized in this forum and elsewhere going through large corrections/consolidation when growth falters and margins fall. This doesn’t necessarily mean that these companies were bad but as investors we got the following wrong
a) external environment/competitive intensity/dumping
b) extrapolating one time/short duration margins as sustainable margins

A simple game theoretical explanation is sufficient to prove that anything that can be mass produced by multiple players will have cyclicality.

For a medium term growth investor the most important thing is to get the following two right:
a) Growth
b) Margins sustainability

I will focus here mainly on the margin sustainability part. In yesterday’s call multiple questions were asked around margin sustainability and the management replied with the following:

a) The no. of grades across FP being over 100. The following are links to some documents that point to large no. of grades publicly available:
PVDF (INOFLAR): https://www.inoflar.com/products.html
PTFE (INOFLON): https://www.gfl.co.in/inoflon/ptfe
FKM (FLUONOX): https://www.fluonox.co.in/images/Fluonox-Brochure.pdf
FPA (INOFLON FPA): https://www.gfl.co.in/inoflon/pfa
PTFE MicroPowder (INOLUB PFOA free): https://www.gfl.co.in/PTFEmicropowders/pfoafree
https://www.gfl.co.in/upload/Fluoropolymers.pdf

This is what the management said on developing grades:

"See, in most of the cases where we operate, we are operating in a very specialized grades, and we are not having competition per se, because there is a — see, one thing happens in fluoropolymers is once, let’s say, a grade — let’s say, talk about FKM used for a fuel. And once it’s qualified and accepted, then there is a lot of stickiness, because there’s no — because the numbers– these grades are not change quickly. Plus qualification time is high and also at the same time there is a stickiness to it. So there are — and so there is a long drawn process of qualification, but then — and then slowly the volumes are ramped up as OEM gains more confidence in our grade, and then they remain sticky to us. That’s the process, actually.

So it’s not that I go to a customer with list of my grades and they may give an offer to us. That’s why you may see certain volumes in China or outside, wherever, but those volumes are very little meaning because it depends on the kind of grade and kind of the customer base and applications they are present in."

b) Backward Integration and shifting segments: GFL is the most backward integrated company in FPs and they have similar plans for Battery chemicals except Lithium Carbonate the most basic RM they will make everything inhouse. Despite the fall in LiPF6 prices Tinci China (largest electrolyte producer in world) has significantly higher margins when compared to other players. The call also mentioned of ‘we’ll be having a long term strategic arrangement in place.’ for LiPF6.

Shifting products:

Qn. I mean, if I look at our business model, we have one of the best supply chain. I mean, right from, we have a JV fluorospar, and if the caustic chlorine prices comes down, I mean, we capture it as a lower cost in manufacturing of R22. If R22 price comes down, we can do more of TFEs, if the TFE is lower, you can probably make more of PTFE or PFA. So, is that understanding right, even if the commodity prices comes down, you might have a momentary shift between one segment to another, but largely the price fall should be captured as an input cost benefit to another segment.

Bir Kapoor : Yes. I mean, as you have rightly put, we are completely backward integrated. And, for example, for our PTFE fluoropolymer, the raw material is salt, power and methanol. So most of these — so we are actually insulated from any kind of a commodity price variation in the intermediate part. So, I think your understanding is fine, it’s just — it’s not going to have an impact, either the price rise or price drop in any of the intermediate chemicals.

d) Exit of 3M and move towards non-fluorinated surfactant technology which is limited/patented.

e) Significant cost savings in power (more details awaited).

In conclusion, large no. of grades ensuring GFL is not mass producing FPs and hence will have minimal impact of cyclicality with high client stickiness, backward integration allowing shifting to higher margin products depending upon the market scenario, +ve demand side (3M’s exit), non-fluorinated surfactant tech and the upcoming power saving gives high confidence in margin sustainability in GFL.

Discl. Invested. Trades in last month.

ram1984 · February 8, 2023, 10:20am

Kureha Corp and Daikin Chemicals also posted good results yesterday suggesting industry tailwinds.

Kureha Corp

Daikin Chem

daikinpresentation pdf.pdf (337.2 KB)
FY2022Q3_Results.pdf (730.4 KB)

Donald · February 11, 2023, 6:41pm

Strategic change in Indias fortune in J&K by discovering 5.9 million tonnes Lithium Deposit.
A medium-to-longer term impactful development for Gujarat Fluoro Battery Chemicals. Approvals, environment clearance to eventual mining activity commencing may take up to 5 years?

Given this government’s focus on securing Lithium supplies globally, we can be hopeful though that this project is fast-tracked and bottlenecks/roadblocks are smoothened/removed, as feasible. On the other hand mining and refining are different things. Refining/Processing set-up may need higher order technology/ investments. As per some reports China still accounts for more than 60% of Lithium processing(?)

Lithium Carbonate (Li2CO3) is one of the key RM for LiPF6. This should help develop Lithium Carbonate domestic sourcing capabilities. Neogen is another player currently sourcing/importing Lithium Carbonate going back many years.

tanishq · February 12, 2023, 7:58am

Some interesting export findings -

PTFE - HS CODE 39046100

Other Fluoro- Polymers - HS CODE 39046990

I don’t have the deep knowledge of the Products like the People on the forum here but the export data graphs really show what structural growth looks like both in terms of volumes and realizations.

Worldlywiseinvestors · February 13, 2023, 9:59pm

Neogen Chemicals Comments on Lithium salt and Electrolyte capex (They are doing both Lipf6 and Electrolytes

Key Question that arises: Margins mentioned by neogen are between 18-19% for this capex. What are the margins assumption for GFL Lipf6 capex for those who are tracking the co closely?

From an older concall- where Neogen’s Management points that they plan to manufacture LIPF6, LIF and LIFSI

-Enhancing capacity of electrolytes by 1000mt(earlier 250mt). Will come live by August-September 2023. Second electrolyte capacity expansion Is approved for 5000MT, which will be operational by June 2024.

-Overall capex for all new projects will be 450 crores. Will be funded by a mix of debt and equity.

-At a consolidated level, want to achieve 2000-2250 crores by FY26-FY27.

Funding of capex:- Banks will fund 70-75%. 20-25% will be done through internal accruals.

-20% ROE, we will do on this capex. If we make salt and electrolytes together, will get similar asset turns and similar margins.

Similar margins in this business. Existing business can do 1000-1200 crores by FY26-FY27. In Battery business, have worked with both international and Indian businesses for lithium salts. Customers have given positive feedback regards to our lithium salts and electrolytes.

-Margins for the new business will be between 18.5, + or -1%. Considering this when we are starting from Lithium carbonate doing lithium salts and electrolytes.

-Working capital of this business will be significantly better.

ram1984 · February 18, 2023, 1:22am

December 2022 export data from DGFT website

sahil_vi · February 18, 2023, 6:46am

Scuttlebutt with ex-Chemours Senior executive

I met with a former senior employee 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 r134a, 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.

Donald · February 23, 2023, 7:28pm

Thanks @sahil_vi for a great start to Scuttlebutt efforts with Domain Experts.

Here’s a question-flow that our Collaborative Team for GFCL has come up with - with meaty contributions from @Anant @Rokrdude @spatel @Donald to try and bring everyone on the same page quickly on the Humongous opportunities, as well as many Vulnerabilities inherent in this business/industry dynamics

10 Questions to get-to-better-grip with GFCL business dynamics/FP Industry
(standardised comprehensive set to use with any domain expert we may run into).

1. GFCL MANAGEMENT DNA?
Unknown/Not-so-understood entity?
Perseverance/Focus as defining Traits?
How do they Think/Plan/Execute?
Who/How do they benchmark themselves on?
Recruit/Develop/Nurture key Middle Management?

GFCL Management has steered GFCL through extraordinary milestone(s) achievement in the last 5-10 years or more. Long-term vision Vision/Execution has been top class. It would appear to have suddenly come out-of-nowhere and punched far above its weight – way more than established peers like SRF, Naveen Fluorine.
Will be great to get a sense of the GFCL Management Strategy/Execution process – how/ what makes them what they are? What/how would you characterise GFCL Management DNA?

2. AMBITIOUS/AGGRESSIVE/NIMBLE?
FY23-24 2500 Cr Expansion
FY25-27 4000-6000 Cr Expansion
Inherent-GFCL Business-Model Vulnerabilities.

Above is one characterization that easily comes to mind when we try to characterise GFCL Management?
How would you characterise GFCL charted course for next 4-5 years? Where do you see them 5 years down the line?
Fluorine Chemistry (evolution) never seems a done deal? Too Many variables to juggle including on Regulatory (ESG), Technology (Process Chemistry), volatile supply/demand situation in its chosen product-mix/value-migration curve?
To really take advantage of the extraordinary Opportunities before it, one has to be planning far-ahead, and always feet-on-ground, aggressive-in-scale expansions. So far GFCL has executed brilliantly, but next 3-5 years scale - there are big Vulnerabilities too. As an industry insider, how do you think about these?

3. VALUE MIGRATION/CREATION AMBITIONS
Subsidiaries

Battery Chemicals (immediate opportunity Electrolytes)
Green Hydrogen (immediate opportunity PEM Membrane)

Does it look like EV-Electrolyte Market expansion/explosion (China example Tinci EV Electrolyte sales have gone up 3-4x 36000 Cr) a significantly bigger opportunity of the two?
Can’t this market in India be 20-25% of where China is today, in 3-4 years given the EV momentum underway? And GFCL having a dominant share?
Perception generally is the Green Hydrogen opportunity is some years away?
But given the Orderbook sizes of EU Players for PEM Membranes (Chemours 70% mshare plus one (?) and the fact that they do NOT have significantly enhanced capacities, GFCL could be in a great competitive position (Only 2 players currently have commercialized technology) if they are able to develop this quickly?

4. PRODUCT SEGMENT CHOICES
Seems like ALWAYS 2 sides to GFCL business/product mix ?

Likely-Commodity soon vs Protected/Hard-to-get (think new FP, think Refrigerants)
New complex grades – the proven way to stay ahead in the game?

We understand there was an evolutionary path perhaps (for everyone in Fluorine-Chemistry-related industry) – FSC to PTFE/Value-added grades to new FPs. Recent choices though should have been simple? - but there seems to be far more complex factors at play – seeing the pattern unfolding before us!
LiPF6 – first heard 1 to 1.5 years back – 1000T capacity salt, 6000T Electrolyte
The ease with which lot of players are able to claim commercial/production within 12 months? Timing is a bit off (drastic pricing downgrades) even though tons of money will be made probably in FY24?
But within a year this capacity is going to 4000T Salt, 24000T Electrolyte?
Given that Indian battery Chemicals/Electrolyte Market is as yet underdeveloped, how will GFCL really compete?
GFCL liPF6 Process chemistry – different from Tinci’s? Any Yield/Efficiency advantages?
China Market would be impenetrable by GFCL? So it really is EU-US market for GFCL? On the back of fully contracted-out capacities?
CS Report quotes global capacity expansion @61% CAGR, but demand growth @34% CAGR; In 2022 utilisation rate 72%, utilisation to fall to 42% by 2025
LiPF6 - Pass-Through Sourcing/Pricing contracts for Lithium Carbonate (Li2Co3) Sourcing
1000 Kg LiPF6 ($28/kg currently) requires 250Kg Li2Co3 ($66/Kg)
Given the huge uptick in Li2CO3 pricing, why won’t existing pass-through contracts come under pressure? How will GFCL manage the dichotomy?

5. NEW REFRIGERANT GASES (Class 3)
More RATIONAL scale-expansion choice (R32, R410A, R1234yf)
2010 #1 Dongyue Group 178,000T capacity; #2 Juhua Group 134000T
2023 #1 Juhua Group 379,000T; put up 150,000-200,000T additional capacity in last 2 years to take advantage of new Quotas (deflating prices)
Class 3 Refrigerant capacity estimated to grow at 46% CAGR next 2-3 years

GFCL has announced 10000T R32, R410A Capacity expansion
Why NOT 30000T capacity expansion given the Protected Market/Commoditised Market conundrum?
Is there a Rethink ongoing on immediate expansion strategic choices?

6. NEW FP COMPETITIVE POSITIONING

ARKEMA, DAIKIN, SOLVAY and GFCL
CHEMOURS?

How would you characterise GFCL Competitive position among new age FP companies?
Isn’t it a given that for non-China Markets (US and EU in particular) volumes would come to GFCL? Why or why not?
Do they have some better grades that they have but GFCL doesn’t hasn’t yet commenced development/approval trials?
Typical Development/Trial/Approval timeframes for complex grades? What is the maximum GFCL has taken?

7. FLUORINE/POLYMER PROCESS CHEMISTRY - Yield% improvements over time?
Multi-Step Reaction Yields generally improve over time in Organic chemistry (Think Divi’s in Pharma, PI Industries in AgChem)

Please elaborate what has been the experience curve for GFCL in FP processing over the years. Can we expect that this will remain the case for most product developments in future?
If yes, how much of a cushion does this provide in mitigating/insulating against inevitable pricing volatility/commoditisation risks?

8. PFAS-Free PROCESS for all GFCL fluoropolymers

Competition catch-up?
Premium for PFAS-Free?
Reaction Yield% differences with earlier process? Any advantages/Disadvantages?

How long to did we take to develop PFAS-free process? How long will other players take to develop? Chinese players also export to EU it appears, so are they also becoming PFAS free??
Shouldn’t GFCL be expecting premium pricing for PFAS-Free FPs in future. As we move from PFAS to PFAS free processes within the year, should we expecting significant yield differences?

9. PFA Semiconductor Grade Development

Purity Grades
Very High Purity Grades

Please elaborate on state of the industry/applications, and GFCL development status?
Do major customers PUSH/HELP GFCL in developing better grades – as they see a stable, most backward-integrated player, most cost-efficient FP player than others in the fray today No Chinese companies likely here? Why? What is the major Technology/Process differentiator? Any sourcing limitations?

10. PTFE/PVDF and FKM Differentiators
PVDF Separator commoditised
PVDF Binder – only 2-3 companies worldwide – Protected Market?
PTFE Binder – advantages over PVDF Binder? Preferred choice? GFCL development status?
Given 3M exit – why no aggressive scale-up to take up the slack?

FKM advantages? due both R22 and R142b routes?
FKM Low growth/High Growth segments? Demand/Supply?
Why No Chinese Players? # of FKM Grades, the secret sauce?
Since No China players, who is supplying to Chinese Market today?

PS1: Refine using Numbers/volumes from ICICI Reports
PS2: Parse Con-Call Statements (@Needl.ai) for quickly extracting key Product/Numbers/Plans specifics
PS3: Incrementally use the learnings from one expert, use that with the next, with 5-6 domain experts

We have completed the first such comprehensive interview/conversation with one Industry Source. Armed with above it was a very rich conversation flow of over 3 hours. Will be summarising the key takeaways soon (travelling currently).

10-questions-for-GFCL-Management.pdf (221.3 KB) - for those who wanted to email known industry sources/domain experts