Analysts See U.S. Need for DEF Is Growing, But Say It’s a Small Part of Demand for Urea

This story appears in the Nov. 12 print edition of Transport Topics.

CINCINNATI — The need for diesel exhaust fluid is growing rapidly in North America but still makes up only a tiny portion of the continent’s total demand for urea, market analysts said here during a DEF conference.

Urea, the active ingredient in DEF, is mainly used as fertilizer for corn, soy and wheat. DEF, a urea-water solution, is required for diesel-powered trucks with selective catalytic reduction systems.

Analysts with Integer Research Ltd. also said about half the urea used in the United States is imported — with much of it coming from the Middle East — although North America’s abundance of natural gas means that U.S. and Canadian companies could manufacture all the urea needed here if it were necessary.

“The technology choice of DEF with SCR for trucks fits in with the demands for fuel economy and cost savings that manufacturers’ customers desire. The maturity of this choice is clearer now than ever, and it is reinforced by the growing interest in limiting greenhouse gases and carbon dioxide,” said Tim Cheyne, Integer’s director of emissions control.

Since January 2010, original equipment manufacturers have sold nearly 350,000 Class 8 trucks with SCR systems in the United States and Canada, Cheyne said. SCR-equipped vehicles will become an ever-larger portion of the nation’s total fleet, he said, now that Navistar Inc. has shelved its desire to implement an alternative technology, meaning that all new heavy-duty trucks use SCR with DEF to reduce emissions of nitrogen oxide compounds.

DEF is injected into diesel exhaust, enabling it to interact with a catalytic converter that removes NOx.

DEF usage is not limited to heavy-duty trucks, Cheyne said. More than 60,000 Class 7 trucks now use the fluid in the United States and Canada, and almost 150,000 Class 4-6 trucks. The fluid is also used in ships and farm, construction and mining vehicles.

U.S. and Canadian trucks used more than 12 million gallons of DEF in September, and the amount is expected to grow. More than 80% of that was used by heavy-duty trucks.

Integer estimated that U.S. and Canadian trucks will use almost 135 million gallons of DEF this year and that by 2018 the annual usage would be around 700 million gallons — or more if economic growth picks up.

DEF is mainly distilled water — more than 65% — and dissolved urea, a nitrogen-carbon-hydrogen-oxygen compound making up 32.5%. SCR with DEF is also the dominant anti-pollution technology for European trucks.

Demand for urea-based DEF from North American trucking is clearly on the rise, but in the context of global urea demand, it is still a very small market segment, said Monica Baker, Integer’s research manager.

Corn, wheat and soybean production are the real drivers of global urea demand, Baker said. Soybean prices, in particular, have grown sharply since 2009, meaning that farmers are eager to use urea to maximize production.

Major urea makers are doing well, Baker said, generating profits of $14.1 billion in 2011, a sharp increase from the recession-induced bust of 2009, when the industry earned just $4.1 billion. Those profits have drawn additional capacity into the market.

Urea is often made with natural gas, although Chinese companies do it with coal, which is abundant there. Baker said global urea manufacturing capacity has grown to about 225 million metric tons a year, up from 150 million metric tons in 2006. Over the same time, urea plant utilization has fallen to about 77% from nearly 90%.

Of the more than 160 million metric tons of urea expected to be used this year, about 140 million will be for fertilizer, Integer said in its urea market report, meaning about 20 million metric tons go for industrial purposes, including DEF.

The greatest uses for industrial purposes are chemical resins, including adhesives, sealants and formaldehyde, Baker said. The chemical industry uses about 80% of the slice for industrial purposes. Of the last 20% of the industrial segment, that is split evenly among feed for livestock, DEF and miscellaneous uses, Baker said.

The Middle East and North Africa export urea, as do Russia and Ukraine, Baker said, although Russian urea does not play a role in the United States because of U.S. tariffs. Baker said she expects that North American urea production will increase because of the natural gas boom.

At the same meeting, Chad Dombroski, an executive with Yara North America, said his company is investing in urea for DEF production in Saskatchewan. Yara International, based in Norway, is one of the world’s largest urea producers.

As for the current price of DEF in North America, the retail pump price of DEF was about $2.80 a gallon in September, but that is the most expensive way to buy it, said Chris Goodfellow, an analyst at Integer.

When purchased in a 300-gallon tote, DEF is about $2.10 a gallon. Shipments via tank truck are growing in popularity, forum panelists said, both in terms of full tank trucks and partial, or less-than-truckload, shipments. Goodfellow said those large volumes drop prices to $1.80 a gallon or less.