Urea shortage puts supply chain under ‘extreme pressure’ with supplies at risk and prices to soar

https://www.news.com.au/finance/business/travel/urea-shortage-puts-supply-chain-under-extreme-pressure-with-supplies-at-risk-and-prices-to-soar/news-story/7808eb00f813945293cbab5539585ea4


Australia is just weeks away from a major crisis which could see tens of thousands of vehicles pulled off the road and supplies of key items dwindle.


Australia is on the brink of a major crisis that could see tens of thousands of vehicles pulled off the road, grocery supplies dwindle and prices skyrocket, with every citizen set to be impacted.

On Friday, news.com.au reported on the urea shortage facing the nation, with experts warning the fiasco would devastate the transport industry within weeks.


But the full extent of the nightmare is becoming clearer, with the shortage set to also affect agriculture, power generation, the trades, healthcare and everyday consumers.


The crisis


The world is currently facing a major shortage of urea, a key ingredient found in diesel ­exhaust fluid (DEF) – also known as AdBlue – and a large component in fertiliser.


A major factor in the supply disruption is the fact China – which previously supplied 80 per cent of Australia’s urea supplies – has recently banned the export of the product, in order to lower fertiliser prices domestically.


That has left nations such as South Korea in the lurch, and now Australia is facing the same threat, with the shortage set to come to a head by February at the latest – although the impacts could be felt sooner than that.


The urea shortage is such a significant problem because AdBlue is injected into the exhaust systems of modern diesel vehicles in order to reduce emissions, which is a mandatory requirement for trucks, private vehicles and tractors.


While it is possible to adapt the vehicle, doing so is highly illegal, with rule breakers facing major fines.


As a result, insiders fear that without urgent action, tens of thousands of vehicles could be pulled off Australian roads within weeks – a move that would cause supply chain havoc during the busy holiday period.


‘Extreme pressure’


National Road Transport Association (NatRoad) CEO Warren Clark told news.com.au every single Australian would feel the pinch if the crisis was not averted.


“To be really clear, the lack of AdBlue, without breaking the law, is going to have a large impact on everyday Australians, everyday consumers and everyday business owners,” he said.


“We’ve got a freight supply chain under extreme pressure coming out of Covid, and about 50 per cent [of Australia’s truck fleet] runs on AdBlue, so it’s a massive issue, it’s half the fleet, so what happens then?


“Without breaking the law, we will potentially run out of the chemical by about February next year, but we are thinking it could be earlier.


“We saw supermarket shelves empty during the pandemic, and this could be way worse.”


In addition to shortages of everyday staples, Mr Clark said the delivery of crucial pharmaceuticals could also be affected, which would cause “major disruption” to countless lives.


Tens of thousands of vehicles could be forced off the road. Picture: NCA NewsWire/Jeremy Piper


Another impact of the urea shortage could be power generation, especially in South Australia, where a lot of back-up generators used in hospitals and other facilities use AdBlue, while countless tradies could also have their vehicles barred from the road, causing construction backlogs.


“We could have power generation issues for sure – nothing happens until we’re under pressure, and then all of a sudden there’s nothing to fall back on,” he said.


“Tens of thousands of vehicles could be affected – you have a lot of small business owners and tradesmen and construction workers who use diesel-powered smaller vehicles.


“And a lot of new cars purchased two or three years ago – passenger vehicles – also run off AdBlue and when that runs out at the bowser, they can’t run the car.


“And the other thing is a lot of new tractors, harvesters and agricultural equipment run on AdBlue, and without illegally turning it off, these tractors will also stop, which means fruit and vegetables might not get to the supermarket shelves because the machinery might not work.”


Mr Clark said the government needed to address the complex crisis immediately, adding that simply banning the export of Australia’s own meagre urea supply could cause trade breaches, landing Australia in hot water with trade partners.


“This is a supply chain issue the Government needs to look at, because they’re the only ones who can fix this,” Mr Clark said.


“We have a crisis here that could impact every single person in this country if we don’t solve it.”


The shortage means headaches for consumers, with prices set to soar and supplies to dwindle.


He said the shortage highlighted Australia’s vulnerability, given our reliance on the importation of so many vital products, and said people were so worried about the urea crisis they were beginning to “stockpile” it just like shoppers did to toilet paper during the pandemic.


He said the “panic buying” or AdBlue meant it was difficult to estimate just how much we had left in the country, with some of NatRoad members claiming they could run out as early as this week.


NatRoad is pushing for the establishment of “a task force of industry, with officials from relevant departments” to manage the shortage in the immediate term.


‘Double trouble’ facing Aussies


An Aussie farmer told news.com.au urea shortages “could cause double trouble” with “no tractors to produce food, and no trucks to deliver it”.


He said the looming shortage was causing headaches across the industry, with those in the sector also reeling from soaring fertiliser prices, and the impending closure of a plant owned by Incitec Pivot, a major producer of fertiliser in Australia.


“The fertiliser game is a sh*tshow at the moment, given fertiliser shortages and exorbitant prices,” the concerned farmer said.


Meanwhile, agricultural market analyst Andrew Whitelaw told news.com.au the availability of urea used specifically for fertiliser was less impacted than that used in AdBlue, but said farmers were being smashed by “skyrocketing” fertiliser prices.


Prices have been climbing for some time, but began to increase in mid-2021 before soaring in September.


The shortage is hitting the ag industry too.


For example, in October 2020, farmers were paying in the low $400s per tonne (for urea landed in Australia) – but this October, it had more than tripled to around $1200-1300 a tonne.


“China has decided that because fertiliser prices are getting so high, they’ll ban exports to make prices low domestically so their own farmers can afford to buy it. Russia has also done a similar thing, but not the same level,” he said.


“The biggest impact is that farmers need to pay for that because they need synthetic fertiliser to produce yields, and produce enough to feed the world.


“It’s impacting farmers around the world and not just us – if all farmers stop using fertiliser or reduce volumes because they can’t afford not to, it will have an impact on yield, which will impact the amount of food produced around the world, and prices will rise – it’s supply and demand economics.


“This is absolutely a major cost that farmers face – we’ve got diesel prices at really high levels, fertiliser at really high levels, chemicals at really high levels and labour costs at really high levels – all these factors are very expensive, so it’s a concern.”


‘Worst case scenario’


Western Roads Federation chief executive Cam Dumesny also recently told radio station 6PR the road transport industry was facing a crisis which could lead to a “worst case scenario”.


“We’re going to need to support our manufacturers. We’ve got about three manufacturers in Australia – we’re going to have to help them find strategic sourcing of the base agent from anywhere in the world if we can get it,” he said.


“If we can’t do that you’ve got the worst case scenario … we start rationing it, if you follow the logic of that,” Mr Dumesny continued.


“Which areas of transport do you want to prioritise?”


Closure sparks panic


Australia imports the overwhelming bulk of its urea supply, with 80 per cent coming from China.


While we do create some urea locally, it’s not enough to address the shortage – and to make matters even worse, one of our biggest fertiliser producers, Incitec Pivot, is set to close one of its plants next year.


Last month, Incitec Pivot, a $6 billion fertiliser company, announced it would “reluctantly cease manufacturing” at its Brisbane-based Gibson Island plant at the end of December 2022, leaving 170 jobs in the lurch.


The facility converts gas into fertiliser products, and can manufacture 280,000 tonnes of urea per year, as well as hundreds of thousands of tonnes of ammonia and ammonium and thousands of tonnes of AdBlue.


The decision was made after “exhaustive efforts were unable to secure an affordable long-term gas supply from Australian gas producers”, the company revealed in a statement.


Incitec Pivot’s Gibson Island fertiliser plant is closing next year. Picture: Liam Kidston


At the time, IPL managing director and CEO Jeanne Johns said that after 50 years of continuous production and reinvestment at Gibson Island, the company was “disappointed” it was unable to continue.


The news sent shockwaves through the industry, with shares plummeting by 4 per cent following the announcement.


News.com.au contacted Deputy Prime Minister and Transport Minister Barnaby Joyce for further comment, after Mr Joyce confirmed in a statement on Friday the government was “aware” of the issue.


More Coverage

Crisis could force cars off the roadsBig problem for Aussie truck drivers


“The Government is aware of the concerns around the supply and availability of AdBlue and is continuing to monitor the situation,” the spokesman said.


“We encourage industry operators to continue operating as they normally would.”