DEF Pump Prices Down Sharply as Supply Grows, Urea Drops

This story appears in the Aug. 20 print edition of Transport Topics.

The price of diesel exhaust fluid at the pump at U.S. truck stops dropped significantly in July, following a similar decline for urea, the main ingredient in DEF.

The national average price for a gallon of DEF was $2.70 in July, down 28 cents a gallon from June, Integer Research said in its DEF Tracker survey. Integer has been recording prices monthly since October and said July’s reading was the lowest yet.

“The two major factors for this decline are the cost of urea — there was a price spike in April — and competition in selling DEF,” said Christopher Goodfellow, an Integer analyst.

The survey found 599 truck stops selling DEF in July, compared with 182 locations 12 months ago.

“Truck stop prices at the fuel island are extremely competitive, thanks to investment by Pilot Flying J, Love’s, TravelCenters of America and others,” the company said.

“We buy in bulk and over-the-road and have seen price reductions in both ways,” said Murray Droescher, chief financial officer of TransAm Trucking, Olathe, Kan.

The refrigerated carrier, No. 78 on the Transport Topics Top 100 list of for-hire carriers in the U.S. and Canada, mainly buys DEF on the highway, Droescher said. He started noticing the price falloff in late June and early July and said it has amounted to about 10% total.

Less-than-truckload carrier Southeastern Freight Lines, Columbia, S.C., emphasizes bulk DEF deliveries to its terminals rather than over-the-road, said Chip Sheely, director of sustainability.

“We’ve been buying DEF for 14 months, and we’ve seen some swings in prices, but it’s as low now as it’s ever been,” Sheely said last week. “Absolutely, there is more competition now. I’ve been approached by three or four companies lately, including one this morning,” he said. Southeastern is No. 27 on the TT 100 for-hire list.

Southeastern’s selective catalytic reduction trucks make up 15% to 20% of the carrier’s fleet now, Sheely said, meaning the company will spend about $300,000 to $400,000 on the fluid this year, but today’s price is less than what is expected in years to come, as the percentage grows toward 100% of its trucks.

“Today, our DEF budget is not even like what we spend on motor oil, but soon it will surpass that,” Sheely said.

DEF became part of North American trucking in 2010 when most truck and engine makers adopted SCR technology as a response to a federal regulation seeking to limit nitrogen oxide emissions. The solution is mainly water — more than 65% — and urea, a nitrogen-carbon-hydrogen-oxygen compound making up 32.5%.

SCR aftertreatment systems on trucks must have DEF to reduce nitrogen oxide compounds in exhaust. The fluid is not used in cylinder heads to promote combustion.

For every 100 gallons of diesel burned, the SCR system uses 2 to 3 gallons of DEF, according to truck makers.

U.S. businesses currently use 11 million tons of urea a year, with 6 million coming through imports, said Frank Zaworski, the market editor who follows U.S. urea for ICIS, a Houston-based chemical markets information service.

Urea prices topped $700 a ton on the Chicago Board of Trade swap futures market in April, according to Bloomberg News data. The price fell below $600 in late May and has closed below $450 a ton since Aug. 1.

The United States and China are the world’s top two consumers of urea, Zaworski said, adding that he anticipates the price of a ton to remain steady in the $430 to $460 range for the next several months.

Zaworski said urea prices have a seasonal rhythm because the commodity is mainly a fertilizer, often for corn and wheat. Prices typically surge before spring planting and drop in the summer.

“There’s not enough volume from DEF to move the market yet, but urea manufacturing companies are paying serious attention to DEF because they think it can become a market mover,” Zaworski said.

Integer estimates that about 90% of the urea made is used as fertilizer.

Integer also tracks DEF prices in Europe, where trucks started using the product in 2006, Goodfellow said. There is more alignment among U.S. and European DEF prices than there is among diesel prices on the two continents.

“There is a large variation in the country-by-country pump pricing in Europe and a number have pricing that is currently higher than that found in the U.S. That said, the U.S. dollar equivalent price in Germany, the continent’s biggest market, was $2.21 per gallon in July,” Goodfellow said. Much of the diesel price discrepancy is because of taxes, with European governments taxing fuel at a higher rate.

European truck fleets also benefit from a more mature market for DEF. While DEF options have risen swiftly in the United States, Europe is more saturated with 4,500 truck stops on the continent with DEF, compared with the roughly 600 here.

Beyond the DEF price at truck stop pumps, Goodfellow emphasized that there are other, cheaper ways to buy the fluid.

“Bulk sales of DEF to fleets, either via totes or permanent storage facilities, play an important role in the market. The pricing data suggests that tote prices are roughly 20%lower than those found at the pump, although this depends largely on the volume purchased and the location of the fleet,” he said referring to totes, or large above-ground containers with up to 330 gallons of volume.