Diesel Exhaust Fluid (DEF) Pricing

As we know with Diesel Exhaust Fluid (DEF) pricing in its short life is they have had changes that have moved up and down. The pricing moves have not been as dramatic as diesel fuel prices but for a lot of fleet management companies, flat line is usually better than ups and downs.

There have been a few of our fuel management clients that have asked if it is possible to lock in their DEF costs. A fleet manager like to be able to predict on any fuel manager services possible.

We don’t believe you should lock into diesel exhaust fluid pricing at this time and one of our main reasons, is that the market place is still getting to know itself. Here are a few other reasons.

Reasons to not commit to holding pricing include:

• Urea Producers Monthly Price Adjustments – The distributor would be taking on risk if they were to commit to holding prices when their costs fluctuate. You can argue that the price could drop and then the supplier would have a positive position; however, the price trend for urea has been more up than down over the years
• High Price Per Gallon Quotes – If one were to commit to firm DEF pricing, the price per gallon for DEF would have to be inflated over current market pricing to take out the variables and risk, rendering the pricing to be uncompetitive in the market.
• Influence on Agricultural Events – In May 2008, ethanol demand rose significantly, which led to higher corn prices, then to higher fertilizer prices, and finally to higher urea prices. Urea prices climbed from $400 a ton to over $800 a ton in a little over a month. So if in early 2008, you locked a customer into a one-year contract, you would certainly be trying to renegotiate.
• Diesel Fuel Costs – Diesel fuel prices fluctuates independently of urea, but is a component of DEF delivery. If a delivered price is quoted, the distributor could be faced with increased urea and diesel fuel costs in the same month.
• Urea Supply – The other risks are on the supply side, since urea production is limited to only a hand full of plants in the US, what happens if one of these plants would shut down for six months? Urea prices would be expected to rise.

Urea is much more unpredictable than diesel fuel. This is due to many of the factors mentioned above but mainly because urea price is based on supply and demand driven from the agriculture markets.

This is why locking in a price for DEF is a risky proposition.