More Uncertainty Ahead for DEF Markets

Analysis by Alan Apthorp

It’s critical for modern fleets, yet it’s been in short supply this year. Of course, we’re talking about Diesel Exhaust Fluid, the blend of urea and water that converts harmful diesel NOx emissions into harmless nitrogen and water. As we wrote at the beginning of the year, high European natural gas prices, Chinese and Russian export restrictions, and competing fertilizer demand have driven urea prices to historic highs. That has caused DEF prices to rise and created logistics challenges. Now, DEF markets are facing new supply challenges.

Although DEF prices have historically been tied to the New Orleans, Louisiana (NOLA) price of urea, that index is beginning to fade in utility. The uncertainty in the market has caused some major suppliers to decouple from NOLA, with a majority of DEF supply offered at spot prices and just a portion tied to the NOLA index. An article by JobbersWorld notes that DEF prices are expected to rise in January, even as the NOLA turns lower.

Higher prices stem from several factors. Urea prices will remain unsteady in 2023, especially as the agriculture industry competes to siphon urea to fertilizer. In addition, logistics and delivery are other challenging components of prices. As JobbersWorld points out: “In the past two years, costs for trucks are up 10% or more, tanks and equipment are up by 10 to 20%, and labor rates have increased 20 to 40%. On top of that, lead times for customer tanks has gone from 4-6 weeks to as long as 12-18 weeks, and the cost of fuel remains relatively high.”

Looking ahead, Argus is forecasting a 7-22 cent per gallon increase in DEF prices this January. Locations in the center of the country may see lower price hikes, compared to higher rate increases in coastal markets like Florida. At the same time, Argus sees DEF demand growing 5% in North America, hitting 1.34 billion gallons next year.

Mansfield has secured DEF supply for its customers in 2023. Not sure what the DEF shortage means for you? Contact a DEF representative today.

 

Market Condition Report - Disclaimer
The information contained herein is derived from sources believed to be reliable; however, this information is not guaranteed as to its accuracy or completeness. Furthermore, no responsibility is assumed for use of this material and no express or implied warranties or guarantees are made. This material and any view or comment expressed herein are provided for informational purposes only and should not be construed in any way as an inducement or recommendation to buy or sell products, commodity futures or options contracts.

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