Record urea prices squeeze AdBlue margins in Europe

The SCR system substantially reduces nitrogen oxide (NOx) emissions by converting it into harmless nitrogen and water through the use of a special catalytic converter and a water-based urea solution called AdBlue. That means that new trucks and buses will be fitted with an AdBlue tank as well as a fuel tank. (BPFuels graphic)

The Trucker News Services

7/21/2008

LONDON — Urea prices reached record highs in June 2008, increasing the pressure on the AdBlue market's already tight margins, market information firm Integer Research reported July 18. When combined with the additional pressure from the soaring price of automotive diesel, and growing doubts over the health of the commercial vehicles market, it would appear AdBlue suppliers are heading for tougher conditions in Q3 2008.

AdBlue, a urea product, is used in Selective Catalytic Reduction, or SCR, emissions control technology. The technology, already in place in Europe, will be employed by some engine manufacturers to meet EPA 2010 requirements in the U.S.

Given the competitive nature of the AdBlue market, where the struggle to develop early market share has cut margins to the absolute limit, there is little producers can do to absorb further cost increases given the already tight margins, Integer Research says. Indeed, this squeeze on margins has already resulted in a series of price hikes as suppliers look to preserve profitability.

Integer also has learned from its research that producers are now receiving much better returns on urea when it is sold as fertilizer.

Understandably, neither OEMs, nor AdBlue producers want a volatile AdBlue price, a development that would be ill-received by end-users, especially given the current EGR versus SCR climate in countries where Euro 4 sales make fuel savings less obvious.

In response to a rapid increase of the urea price and surging energy costs across Europe, AdBlue prices have increased by an average of EUR0.08-0.09/liter since January 2008. Integer Research expects another AdBlue price increase in Q3 2008 as input costs look set to remain high through the rest of the year.

Although customers are never receptive to price hikes, there is some understanding among carriers that, given the inflationary background of the economy, prices need to increase, the Integer Research report says. Producers also understand that AdBlue prices should not be allowed to reach a point where manufacturers using SCR would be at a competitive disadvantage to those using EGR. However, there remains room for movement, with the ceiling AdBlue price dependent on the price of diesel, which continues to rise as international oil prices surge, the report concludes.

Integer Research supplies market information, analysis, forecasts and strategy consultancy in key technology and commodity industries, including emissions control and chemicals.