Posted by Scott Bryers
Customers often ask me, “What are the factors that influence the cost of my Diesel Exhaust Fluid (or DEF) and how available will it be as DEF use increases?”
DEF is a high-purity, urea solution designed to reduce NOx emissions in new diesel vehicles. Urea is also a popular solid nitrogen fertilizer because of its high nitrogen content, with almost 90% of output going into fertilizers both here in the United States and around the world. In many industrialized countries, a growing volume of liquid product is consumed in the production of nitrogen solution fertilizers, and in liquid cattle feeds. As a result, DEF manufacturers and distributors like Airgas compete with the agricultural markets in the U.S. and around the world for the urea needed to produce DEF. It is a true supply-and-demand environment and costs will fluctuate based on U.S. and global agricultural demand and supply chain factors.
Both domestic and international urea prices continue to climb, due to a combination of high demand and some supply interruptions.
On the demand side, agriculture (the market that still consumes approximately 90% of the world’s ammonia and its derivatives, such as urea) continues to be very strong, with a growing need for more fertilizers. World grain inventories – corn in particular – are low, creating higher prices for these grains, thus giving farmers a strong incentive to plant more acres, and fertilize them more than usual. Since ammonia and urea are two of the principle fertilizers, the demand for these products is very strong right now.
On the supply side, gas curtailments to several plants in Trinidad (a major exporter of ammonia and urea to the United States), the shutdown of production in Libya due to civil war in the country, and a longer-than-expected shutdown of a domestic plant have contributed to a tight supply situation.
Environmentally mandated consumption in both the U.S. and Europe is expected to grow dramatically from 2011-2014, with demand increasing by 20% per year in the two countries combined. India, China and Brazil have all implemented new NOx regulations that will require urea/DEF and will further increase worldwide demand.
As we gear up for increased DEF demand in the U.S., Airgas has secured long-term supply agreements and our customers should be assured they will be able to get product with API Certification from us anywhere in the country. We will continue to tie our DEF price adjustments (up or down) to the NOLA Urea index each calendar quarter. Customers can follow the index via subscription to Green Markets to track market trends. We also continue to refine our distribution processes to bring the highest-quality API Certified DEF to our fleet and distributor partners at very competitive prices.
Since there have been many questions and some confusion about this subject in the DEF marketplace, I invite you to add your thoughts and/or questions in the comments below.