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Understanding UREA Pricing and its Relationship to DEF

February 20, 2014 - 8:51am

For those of us in the business of Diesel Exhaust Fluid (DEF) whether it be producing, packaging, distributing or using, we know that DEF is made from high purity UREA and DI Water. What sometimes gets lost is the relationship that UREA pricing has on DEF and what drives the pricing of UREA on a local and global scale.

It’s pretty simple, Agriculture drives the price of UREA world wide. When Agricultural demand rises so too does the cost of UREA. Its Economics 101, the Law of Supply & Demand. The chart below shows the historical UREA pricing based on NOLA (the exchange for which UREA is traded) from Green Markets Data going back to 2005 through this week.

You can easily see the spikes entering into the Spring planting seasons (i.e. DEMAND) and how the Agricultural market affects the pricing of UREA. The other side (i.e. SUPPLY) is not as easily depicted, because factors such as: plant shut down, imports, freight traffic, weather, etc. all impact pricing. For example, in 2013 the rapid increase in UREA pricing was not felt as greatly as in previous years. The leading factor was imports outpaced the demand for the molecule. This helped suppress and minimize DEMAND outweighing SUPPLY keeping costs in check and relatively stable. However, in 2012 the reverse was true. While SUPPLY was adequate for DEMAND, the issue was getting SUPPLY to where it needed to be. Weather and other freight related issues caused DEMAND to spike and SUPPLY to be short increasing pricing dramatically.

The following is a general rule: for every $100/ton UREA moves up or down, the cost of DEF will adjust by approximately $0.15/gallon. In September 2013, the cost of UREA was trading on NOLA at its lowest in 3 years, $286/ton. Since then UREA has slowly and steadily increased reaching $420/ton this week. Many in the industry feel that $450/ton will be the maximum for this year barring any unforeseen issues (i.e. unplanned plant closures, extreme weather, etc.). However, this also means that since September there have been and will be pricing adjustments/increases affecting costs throughout the supply chain.

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