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What’s causing the urea crisis and who does it impact?

It’s not just Australia that is being adversely affected by the AdBlue shortage, as supply issues are having ramifications in South Korea and the US.

The AdBlue product in Australia is more commonly referred to as diesel exhaust fluid (DEF) overseas. DEF’s critical ingredient is urea, which helps to reduce emissions, and is a mandatory requirement of many diesel vehicles, including both trucks and private vehicles.

Supplies of urea from China have plummeted recently, primarily because China (the major supplier of urea to the Asia-Pacific region) recently reduced back exports of urea on a massive scale in a bid to reduce domestic fertiliser prices.

China uses close to one-third of global urea production. In 2018, the country’s urea production sat around 69.5 million metric tons, according to a Southern Counties Lubricants report

South Korea’s initial knee-jerk response on China’s move was to collect thousands of litres of urea – as reported by news.com.au. This may have a further impact on Australia’s attempt to stockpile supplies.

South Korea ceased production of urea in 2011. Whilst not requiring complex technology to manufacture (made by adding carbon dioxide to ammonia), it doesn’t make sense from a cost perspective compared to China and Russia, where they already produce coal or natural gas to extract ammonia.

It’s much easier to import urea because as a low-end product, compared with Japan, which produces urea in the country for its stable supply as an essential raw material. Australia does create some urea locally, it’s not enough to address the issue, which is why it imports 80 per cent from China.

Seoul will undoubtedly look to expedite supply and diversify import channels from other countries such as Russia, but according to the Korea Economic Daily, new DEF channels may take months to arrive and may not meet even the current specifications when it does.

Another factor is the spread of Covid-19 sidelining port workers and truck drivers, impeding distribution of goods made at factories in Asia and arriving by ship to North America and Europe.

In the US, commodity prices have risen for crops, metals, energy, and chemicals such as urea. Just like oil, urea prices have escalated due to the post-pandemic recovery.

Additionally, Hurricane Ida damaged some of the major Gulf Coast manufacturing plants, creating delivery issues across the country. New Orleans also acts as a major hub for urea trading, causing prices to rise.

 

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