We look at the regional HVAC market, which last year experienced something of a crossroads, where the growing demand for HVAC solutions has collided head-on with various structural challenges.
By: Álvaro León Pérez Sepúlveda
From climate change and economic volatility to the elections in several countries, the Latin American market has projected a complex panorama in 2024 where growth opportunities converge with no less important challenges.
The Latin America HVAC market is expected to reach a value of USD 18.88 billion by 2032, with a compound annual growth rate (CAGR) of 4.9% between 2024 and 2032. Furthermore, the global commercial HVAC market is estimated to grow by USD 25.3 million between 2024 and 2028, driven by the rise of data centers and the impact of AI on market trends.
Slowing economy
One of the main factors affecting the regional market is, of course, the behavior of the economy. In recent months, various scenarios have been insisting on the possibility of ending 2024 with a less satisfactory balance than in previous years. The risk is shaping up to be real, considering that already, since the beginning of the second half of the year, many countries have reported weaker-than-expected growth and inflation has already caused several central banks to raise interest rates.
Renato Pires, general manager for the Andean, Central America and Caribbean region at Danfoss, refers to the phenomenon: "At a global level we have a retraction, perceived by companies in the main markets. In Latin America, investment, production, and end-users have been reduced due to a decline in consumption. If you look at the consumer market for goods and services, you can see the decrease. Inflation has also forced us to take a step back and foreign investment has been lower in countries such as Chile and Peru."
Claudia Joya is the commercial manager of Refrimarket Colombia, a company that also has an important presence in Venezuela. In this regard, she states that "this has been an atypical year at the commercial level, where we perceive less investment in new refrigeration projects, since supermarkets reduced the magnitude of their infrastructure. Retail is still a format that allows the end consumer to have slightly friendlier solutions, but if we talk about infrastructure, the demand for cold has been much lower."
Similarly, there have been considerable variations in dollar prices, falls in stocks and increases in debt yields.
"The Representative Market Rate (TRM) is something that affects the entire industry equally. For example, most of the mini-splits sold in Colombia are imported, regardless of the brand. So, the higher the dollar, the more expensive the imported products will be. And if the dollar goes down, the end user receives fewer financial resources," explains Pablo Paredes, HVAC manager for Colombia at Midea Group.
Renato Pires emphasizes that "2024 has definitely been a very challenging year, mainly in distribution to the industrial segment where the levels of investment recorded in the last four or five years have not been presented. Even so, we are working to reach a more positive end of the year with a better scope."
Global scope of political instability
The presidential elections held during 2024 in El Salvador, Panama, the Dominican Republic, Mexico, Venezuela (and soon in Uruguay and the United States) have taken place in a context of growing social tensions, marked by protests and popular discontent in the face of inequality and corruption.
The atmosphere of instability has not only affected confidence in electoral processes, but has also had a negative economic impact. This was evident in Colombia after the 2022 presidential election, when the peso (COP) was devalued by up to 14% in just over two months, just after the elections. "After the change of government, a TRM of more than COP $5,000 was reached. That forced us to change the technology of some air conditioners to keep them on the market," says Pablo Paredes.
In addition, populism and the lack of coherence in economic and energy policies have caused uncertainty in several countries, making it difficult for companies in the sector to define long-term planning and, ultimately, causing many companies to think twice before expanding their operations in Latin America.
"Economies such as Venezuela are very fluctuating due to the governmental issue and this has been a difficult year. In a way, the political uncertainty during the last elections generated a restriction in investments. In fact, it caused many new projects to be halted and instead reconversions and reforms are energized," says Claudia Joya.
Global geopolitical tensions are another factor to consider: as is well known, armed conflicts have a high potential to destabilize the global economy, because they add complexity to the tasks of production and distribution of goods and services.
Pablo Paredes illustrates this with an example: "Wars such as the one between Russia and Ukraine, or the one between Israel and Palestine, directly affect air conditioning orders for Europe and the United States. There, there is currently a greater demand for equipment for fear that the war will escalate, borders will close and shipments will become more complex. These markets have the hot season in June, so buyers purchase air conditioners during the first quarter of the year. As orders multiply, inventories in Latin America take a huge hit in those months."
What does this mean in practical terms? The response of the Midea executive is categorical: "That means that any company that wants to be competitive in 2025 has to plan its purchases in the remainder of 2024 or it is exposed to an inventory shortage of four or five months."
Climate Change Paradox in the HVAC Industry
As in the rest of the world, the regional HVAC industry continues to work to balance its role as a simultaneous solver and contributor to the problem posed by climate change. This paradox, complex in itself, is exacerbated as the economic recession slows the development of clean technology and political instability discourages foreign investment in green infrastructure.
At the same time, the weather phenomenon is triggering new demands in the HVAC market, specifically in historically cold or temperate climatic zones, which have been registering increasingly warm temperatures in recent years.
"Air conditioning has had an increase in some uses and installations due to climate change. In Bogota, a cold city whose temperature has always oscillated around 18 degrees, we already have days with temperatures of 23 and 24 degrees. This has meant that the air conditioning market has increased its dynamism and generated a little more demand than refrigeration," says Claudia Joya.
Pablo Paredes agrees with her: "We are in a mostly tropical region and directly affected by global warming. For this reason, air conditioners have become an increasingly greater need in cities where they were not needed ten years ago. That has represented a growth of more than 40% compared to last year," he reveals, adding that before the end of 2024 Midea will launch a new technology with R32 refrigerant, at a competitive cost for the market.
Midea is not the only manufacturer that is committed to advancing in sustainability and efficiency to cope with the ups and downs of the market. Today, companies such as Intarcon and Danfoss are also directing their strategies to expand their business horizons in the region, offering more profitable and environmentally friendly solutions.
"Although there are countries where we have grown less, at the regional level we are growing strongly thanks to our sustainable technologies," says Germán Gil, commercial director of the Spanish company. On behalf of Danfoss, the Cooling Sales Supervisor for the Andean Region, Cristian Vélez, explains that "the development of new products has allowed us to venture into markets that were traditionally in the hands of competitors."
These approaches can give rise to interesting opportunities, as the Intarcon executive puts it: "Sustainable technologies add value within Environmental Social Governance (ESG), which is a financial criterion. If you apply for a loan, you are measured by your ESG. So, applying sustainable technologies gives you value over ESG and improves your rating by the bank. Then there's the issue of lower operating costs. Typically, an investment in HVAC is made for the long term. When measuring the Opex corresponding to those 15 or 20 years, sustainable solutions are usually much more profitable than traditional ones."
Two outliers?
Experts say that, indeed, both Central America and Venezuela are registering a slow but positive evolution of the HVAC market. Factors such as increased urbanization, greater environmental and energy awareness, as well as a gradual recovery of the economy would be contributing to this.
"In Central America, the issue of supermarkets and distribution centers has grown, projects for which we have a fairly broad portfolio. That has allowed us to mitigate the challenges we have had in our natural markets, throughout 2024. A year ago we have been seeing how opportunities are increasing, since they are countries less affected by global phenomena, which has made it possible to negotiate new negotiations in different segments and has made it possible to forecast significant growth in the following years," says Cristian Vélez.
With respect to Venezuela, his colleague Renato Pires points out that "it is a country that has been growing within its limitations, gradually heading towards being very important within the region."
Claudia Joya, from Refrimarket, also believes that the growth prospects in that country are promising: "Once the elections are over, in Venezuela we have been identifying significant increases in demand in some food segments and clear indications of the reactivation of the HVAC market. We have a company in Venezuela called Tecnonorte and it is increasingly participating in quotations and tenders."
What 2025 promises
With the current year just around the corner, many industry players are wondering about the horizons that will open up in 2025. Asked about it, Diego Martín Guerrero de Luna Villalobos, Director of Engineering at Teksol Group, is moderately optimistic.
"While it is true that the Latin American market could grow at a much faster pace, the truth is that companies continue to bet on it. Right now, companies are adjusting budgets and renewing their staff to stay on track. Additionally, we continue to work on innovative products that continue to solve customers' problems," said Guerrero de Luna, who also serves as director of the Peruvian School of Refrigeration.
For his part, when expressing his forecasts, Renato Pires rules out that the situation experienced in 2024 will be repeated with the same intensity next year. However, he chooses to maintain a cautious position.
"Countries like Colombia, Mexico, Brazil and Peru have suffered this year and one would expect the numbers for 2025 to be better. We are confident that next year the projects will begin to start more firmly and there will be greater confidence in the market and the economy. However, we continue to be attentive and working hard because we see a year coming that will be complex anyway," he says.
