RC: Welcome to all our listeners! Thank you for joining this podcast from Argus, a leading provider of energy and commodity price benchmarks and market intelligence. We track and discuss the markets and prices that move our world. My name is Renata Cardarelli, editor of Argus Brazil Grains and Fertilizers. In today's episode, reporter Gisele Augusto provides information on the automotive grade urea scenario in Brazil and the fundamentals of this market. Hi Gisele, welcome.
GA: Hi, Renata. It is a pleasure to be here.
RC: Gisele, does automotive urea have a price difference compared to urea used as fertilizer?
GA: Automotive grade urea usually has a premium over agricultural grade urea, which is used as a fertilizer. At the end of August, this premium reached $186/t. This type of urea is used to produce Arla 32, also known as DEF or Adblue, which is a liquid automotive reducing agent used in diesel-powered vehicles to reduce pollutant emissions. This difference in price is one of the biggest challenges for the consumption of automotive urea, as many buyers, comparing the prices of both, end up buying the fertilizer, which is not recommended for automotive use because of its chemical specifications and which tends to be more polluting.
RC: What is the current consumption of automotive urea in Brazil?
GA: Renata, Argus estimates a demand of almost 390,000 tonnes of automotive urea in 2024, an increase of 11pc compared to 2023. However, this variation is not necessarily positive, since it is necessary to consider the increase of more than 10pc registered in sales of heavy vehicles, which would be the main consumers of Arla 32, raising the demand for raw materials. Market participants point to an increase in the use of illegal devices that circumvent the use of Arla in vehicles. These devices are expected to reduce Arla consumption in Latin America by 25pc this year, limiting the growth of the automotive urea market.
RC: Apart from using these devices, is there any other way for the Brazilian market to cheat Arla production and consume less automotive urea?
GA: Yes, there are Arla 32 producers who import some volumes of automotive urea so that they can mix it with agricultural urea, reducing production costs but guaranteeing some percentage of product within the necessary specifications. For example, it is possible, thinking only of the biuret content, one of the components of automotive urea, to mix agricultural urea with a higher biuret content with automotive urea with a lower biuret percentage, so that when the mixture is divided up for production, the average biuret is within the maximum of 0.8pc established by the ISO standard.
RC: What specification of automotive urea is required for the production of Arla 32?
GA: Renata, there are several points, but the most important when we talk about automotive urea is the amount of biuret per molecular mass and aldehydes. Urea for the production of Arla 32 can have no more than 0.8pc of biuret per molecular mass and 5 milligrams of aldehyde per kilogram of urea. These specifications are important if Arla 32 is to fulfill its function, i.e. reduce pollutants and not damage the engine and other parts of vehicles because of the accumulation of impurities.
CD: Gisele, the price difference you mentioned is influenced by what factors?
GA: In addition to the usual issues related to global supply and demand flows, sea freight is a very important factor in this market. Normally, automotive urea is shipped to Brazil in 40-foot refrigerated containers, unlike the bulk shipments that are common in the agricultural world. Automotive urea does not need refrigeration, but this type of container is used so that it can be reused on the return journey, for example to load meat. I would point out that, in a scenario without supply restrictions, China is among the main suppliers of automotive urea to Brazil and, of course, is an important consumer market for Brazilian commodities. Container freight varies differently from bulk carriers, especially this year. With the increased share of Chinese electric vehicles in global markets, manufacturing companies have increased shipments of parts for repairs and replacements to regions such as the Americas. This has led to a shortage of containers in China for the transportation of automotive urea, with automakers accepting higher freight rates, since the price of cargo for the automotive industry is also much higher than that for the transportation of urea. At the beginning of March, container freight was around $65/t. In the second quarter, this figure reached around $445/t.
CD: Interesting, quite an increase in freight from China. And what other fundamentals are involved in the automotive urea price premium?
GA: Well, another factor that impacted supply to Brazil is also related to the Asian country and was the suspension of urea exports from China. As one of the main suppliers to Brazil, the restriction of Chinese supply meant that buyers had to turn to other markets that were already usual for Brazil and look for new partners. Cargo from Russia, which is common in the Brazilian market, continued to be offered, but in lower volumes, without much availability on the spot market and with suppliers focused on fulfilling previously agreed contracts. We also began to see an increase in the number of Egyptian cargoes offered to Brazil. This was not a traditional origin, but it has become an alternative for importers. However, constant gas supply restrictions in the region and shutdowns at urea production units have meant that availability from this source has also become limited. Saudi Arabia also supplies urea to Brazil, usually at higher prices than the other origins due to its superior quality, since it is a urea that usually has a percentage of biuret below the maximum established by the standards and lower than the other suppliers. Finally, more recently, we have started to hear offers of cargoes coming from Uzbekistan to Brazil.
RC: It seems that this market still has many challenges ahead of it, both in terms of educating people to use it in Brazil and in terms of global availability. Thanks, Gisele. This and other episodes of our podcast are available on the Argus website at www.argusmedia.com. Visit the page to follow the events affecting the global commodities markets and understand their consequences in Brazil and Latin America. We will be back soon. See you!
