Business owners and fleet managers have been hit hard in recent years by rising fuel prices. However, fuel prices are not the only thing that are rising in price. Lubricants and other automotive fluids are getting more expensive as well. In today’s blog, we want to talk about the rising costs of diesel exhaust fluid (DEF), and why the next year may be particularly rocky for the DEF market.

What is DEF?
The EPA has mandated diesel exhaust fluid (DEF) in diesel engines since 2010. This fluid is used in the diesel engine’s selective catalytic reduction (SCR) system to reduce emissions. Before SCR technology, diesel engines spewed noxious exhaust gas, but once the SCR system came along, this gas was caught up and reduced through the use of DEF fluid. After the gas passed through the particulate filter in the SCR system, DEF fluid is sprayed into the fluid before the mixture enters the catalytic converter. In the converter, the DEF fluid interacts with the exhaust gas and turns it into water and nitrogen.

This process works because of one key ingredient in DEF fluid: urea. DEF fluid is a mixture of deionized water and urea. Urea is found in nitrogen, and it’s also a common ingredient in fertilizer products. Urea is a high-demand product, and it’s synthetically produced in different grades. Low-grade urea is the most common, which most fertilizers use. But urea is also produced in technological, industrial, DEF, and pharmaceutical grades as well. The higher the grade of urea, the more expensive it may be. DEF urea is a higher grade and therefore is subject to more price volatility and production issues.

The Urea market in 2022/2023
To understand the rising costs of DEA fluids, you have to look at the urea market because it’s the main ingredient in DEA fluid. In recent years, the urea market has undergone big volatility shifts due to supply chain issues, production issues, and the ongoing war in Russia/Ukraine. Here are a few ways these issues have impacted the market in recent years.

Russia/Ukraine War
Urea prices are closely aligned with natural gas, so when the Russia/Ukraine conflict began, and natural gas prices started to rise, so did urea. The ongoing conflict and ensuing sanctions against Russia reduced the availability of fertilizer and urea products. Russia is one of the top exporter of fertilizer products, so when that supply was cut off, it created a domino effect in the industry. Fertilizer products that rely on urea became more expensive, which caused subsequent grades of urea, including DEA-grade urea, to rise in price as well. The ongoing conflict has the potential to continue to affect urea pricing as it continues in the future.

Supply issues
Here in the U.S., most urea is produced along the east coast. So here on the West Coast, we rely on imports from China and other countries to meet our urea demands for DEA fluids. However, China has cut back production and closed several urea plants because of environmental concerns, as these plants were close to urban centers. These closures dramatically reduced China’s exports which is bad news for us on the west coast. The ensuing production issues were further exacerbated by the supply chain and production issues the world experienced due to the COVID-19 pandemic. Production and supply problems remain a huge issue and may still affect pricing in the near future.

Tariffs
In 2018, President Trump imposed tariffs on China, including urea. Extra imports from other countries like Russia, Nigeria, and Trinidad were brought in to fill the gap. Still, these imports were also subject to supply chain issues and the ongoing Russia/Ukraine conflict. As a result of these tariffs, shipping costs rose, and some people began to worry about a ‘fertilizer war’ as products became more expensive. However, in 2022 the U.S. International Trade Commission ruled that it will not impose tariffs on Russian and Trinidadian imports of urea which has helped ease some of the pressure.

How have DEF prices been affected by urea price changes?
As you can see, many factors affect urea pricing and DEF fluid. In recent years, this has led to many ups and downs with ever more increasing ups. For example, at the start of 2021, according to JobbersWorld, industrial-grade urea was $295/ton, but the price continued to rise throughout the year. By the end of the year, it had reached $800/ton, representing an increase of 171%. But, as 2022 began, a sharp dive lead to a decrease in urea prices down to $600/ton, but this was only a temporary reprieve. Before long, prices were again up to $830/ton, only to then drop to $480/ton. Since then, prices have continued to slowly drop but still remain higher than before 2021.

As you can see, that’s quite a rollercoaster of ups and downs, and it’s left many DEF producers dizzy. Many DEF producers decided to try new pricing strategies to reduce some of the volatility, including limiting the volume of DEF fluid available at indexed pricing. This move decoupled DEF fluid from the NOLA index, traditionally the earmarked index for DEF fluids here in North America. By moving away from the NOLA index, DEF producers were able to reduce the impact of other commodity volatilities on DEF fluid in the hopes of stabilizing prices.

What is the future of DEF fluid pricing?
According to JobbersWorld, DEF pricing is expected to remain unstable in 2023, and supply is still expected to be tight. Producers are struggling to recoup costs after the last few years of volatile urea pricing, and rising supply costs, including transportation and delivery time issues, are compounding the problem. For consumers, you can expect prices to remain high or rise higher this coming year as the market adjusts.

We’re here to help!
We know that the volatility of fuel prices, lubricants, and now DEF fluid is difficult for business owners to swallow. Our team is trying to help communicate when these changes are happening and show why things are so uncertain. If you have questions about your fuel, lubricant, or Diesel Exhaust Fluid needs, call us at . We’re here to help you get the supplies you need to keep your trucks in good working order and on the road!