There were a number of reasons for the price rise of sulfur hexafluoride (SF₆). To begin with, rising raw material costs significantly raised the production cost: the price of fluorite (calcium fluoride), SF₆’s major raw material, jumped by 61.5% from $260 per ton in 2020 to $420 in 2023, and the price of sulfuric acid went up by 78% ($40 to $71 per ton) over the period. The manufacture of 1 ton SF₆ required 2.8 tons of fluorite and 1.5 tons of sulfuric acid, and the cost of raw materials alone increased by 45%. Taking the Chinese chemical industry giant Juhua Group as an example, its production cost of SF₆ increased by 37% year-on-year in 2023, and the purchase cost of fluorite increased by $12.6 / ton.
Environmental policies also bring cost pressure. The global warming potential value (GWP) of SF₆ was 23,500 times that of carbon dioxide. The European Union Fluorinated Gases Regulation required the use of SF₆ to be restricted to 21% of the 2015 level by 2030, and the company was required to pay an additional carbon tax of $45 per ton. In 2023, European grid operator TenneT was fined $3.8 million for an SF₆ leak, and compliance cost increased to 8% from 3% of total operating cost. The U.S. Environmental Protection Agency (EPA) required SF₆ recovery rates to increase from 80% to 95%, which increased processing cost by $1.2 / kg and compressed midstream business margins to 12% from 18% in 2019.
Geopolitics are equally vital as supply chain matters. 70% of the global production of SF₆ was manufactured in China, Russia, and India. The war between Russia and Ukraine caused the shipping price of helium to rise by 240% (US $0.8 to US $2.7 / m3). In 2022, German Linde Group had to cut SF₆ production by 15% due to helium shortage, and the spot price briefly surpassed $80 / kg (regular price $50-60). The increase in shipping costs caused the logistics cost of Chinese export SF₆ to Europe to increase from $1200 / container to $3500, and the proportion of the terminal selling price increased from 5% to 12%.
Inelastic demand from the power sector maintains elevated prices. The size of the global high voltage switchgear (GIS) market expanded at a pace of 6.5% per annum, and SF₆ demand was 12,500 tons (80% of the total global consumption) in 2023. In the 2023 bidding of State Grid, SF₆ procurement price rose 33% year-on-year ($55 / kg to $73), mainly because local production capacity met only 65% of the demand. Chinese UHV project boom (12 new lines in 2023) driven SF₆ annual demand growth of 18%, at a median price 41% higher than 2020 levels.
Slow commercialization of alternative technologies has cooled down costs. The unit price of 3M’s Novec™ 4710 (GWP=1) was up to $320 / kg (6.4 times the size of SF₆), and the dielectric strength was only 60% of the size of SF₆, limiting its application to power grids. In 2023, the alternative gas penetration rate globally is only 4.2%, and it will reach 15% in 2030, and the short-term sulfur hexafluoride cost pressure cannot be eased. Although ABB’s g³ gas mixture (SF₆+CF₃) in Switzerland reduced the GWP to 98%, the equipment modification cost was up to $120,000 per unit (18% of the total GIS cost), which slowed down the popularization rate.
Volatility in financial markets heightens price uncertainty. Price volatility of the London Metal Exchange (LME) SF₆ futures contract reached 58% in 2022 (versus 32% for copper), and open interest increased 270%. In the third quarter of 2023, hedge fund shorting caused the spot price of SF₆ to fall 14% in a single quarter, but the industry long-term agreement price remained locked in the range of $68- $75 / kg. Bloomberg predicted that sulfur hexafluoride price would range widely from $65-85 / kg in 2024, and power equipment manufacturers should increase the price ratio of SF₆ to 22% (from 15%) to cope with the risk.
