Can AdBlue drive the market demand for urea?

As one of the downstream demand for domestic urea, the demand for vehicle urea has grown rapidly
in recent years.
Our research finds that in the future, with the implementation of the "China VI" emission standard and the introduction of relevant regulations such as emission control of non-road machinery, the penetration rate of vehicle urea of road mobile machinery will be further increased, while non-mobile road machinery will bring new increases to the demand for vehicle urea, so the overall domestic market demand for vehicle urea will gradually increase
.
Urea consumption is expected to be 1.
53 million tons in 2022, 1.
84 million tons in 2023, 2.
21 million tons in 2024 and 2.
65 million tons
in 2025.

However, the overall demand for urea for vehicles is small, and the demand for urea corresponding to urea in 2021 is 1.
28 million tons, accounting for only 2.
6% of the apparent demand for urea of 49.
3 million tons in 2021.

Although automotive urea is not the main influencing variable at present, we believe that the demand for automotive urea in the future will still be an indispensable supplement to the downstream of urea, as well as the profit growth point
of traditional urea enterprises.

Policies support the acceleration of development

The earliest use of AdBlue for vehicles was in Europe, called AdBlue, and North America called DEF (DieselExhaust Fluid).

European and American countries are mainly diesel vehicles, and there are strict restrictions on automobile exhaust emissions, resulting in a large
demand for foreign automotive urea.
On the other hand, China is in the growth period of vehicle urea demand, and under the background of China's energy conservation and emission reduction and the introduction of "dual carbon" policies, new regulations have been continuously introduced to "upgrade" the emission standards of motor vehicle exhaust
.

Through the policy orientation, the development process of automotive urea is mainly divided into three stages:

The first stage: the introduction of the "China IV" standard is the beginning of
the demand for urea for vehicles.
From July 1, 2013, the "China IV" diesel emission standard adopts two routes, one is the SCR system (adding urea) and the other is using the EGR system (without urea).

The second stage: from July 1, 2017, the "China V" emission standard appeared, the "China IV" car was discontinued, and it was not allowed to be licensed, because the SCR system has obvious advantages over the EGR system, so the "China V" diesel vehicles are basically equipped with the latest SCR system, and the demand for urea for vehicles is officially opened
.

The third stage: starting from July 1, 2021, the sales of "China V" diesel vehicles will be stopped, and light vehicles sold and registered in all regions of the country must meet the "China VI" standard ("China VIA" standard), and the "China VIB" emission standard will be fully implemented on July 1, 2023, the "China VIB" standard is more stringent than the "China VIA", and the limit index standard for pollutants has been greatly improved
.

In order to prevent the "National VI" car from not adding urea, the relevant departments have also issued an announcement
.
On June 22, 2018, the Ministry of Ecology and Environment issued an announcement
on the "Pollutant Emission Limits and Measurement Methods for Heavy-duty Diesel Vehicles (China Phase VI)" (GB17691-2018).
The announcement requires vehicles emitted by China VI to be equipped with a driving performance limitation system (a vehicle driving performance limitation system activated by an engine or vehicle emission deterioration failure), which should have two levels of driving performance limiting capabilities, namely the primary driving performance limitation system (engine performance limit) and the severe driving performance limitation system (limiting vehicle operation).

In practice, if the vehicle screen shows that the urea level is lower than 5% (the driver alarm system is activated, such as "Error Urea Detected", "Error AdBlue Detected"), the vehicle will limit the torque to 75% after stopping, and activate the primary driving performance limit system; If the driver is still indifferent to the limiting system, when the vehicle screen shows that the urea level is below 2.
5%, the vehicle immediately limits the torque to 75%, and the severe driving energy limit is activated, and the vehicle goes limp and the speed is limited to 20 km / h
.
Simply put, if the remaining urea of the vehicle has fallen below the initial minimum limit, it will limit the torque of the vehicle, and if you continue not to add AdBlue for vehicles, it will limit the speed of the vehicle, resulting in the vehicle being unable to run, so the vehicles emitted by "China VI" must add AdBlue
to vehicles.

Or a new increase in the urea market

At present, the mainstream method of domestic production of automotive urea is to purify conventional urea, so as to meet the use standards of automotive urea, such as Longpan Technology
.

The nitrogen content of ordinary agricultural urea is 46%, and the nitrogen content of vehicle urea is 32.
4%, so according to the ratio of purification 1.
5 ∶ 1 ( 46% : 32.
4% ) from ordinary urea to vehicle urea solid, that is, 1.
5 tons of ordinary urea can produce 1 ton of vehicle urea solid
.
At the same time, urea aqueous solution is composed of purified solid urea and high-purity water, and the mass fraction of urea aqueous solution is 32.
5%, which means that 3 urea aqueous solutions need 1 purified solid urea
.

For example, in 2021, the consumption of urea for vehicles will be 2.
56 million tons, corresponding to a demand of 1.
28 million tons of urea (2.
56×1.
5/3=128).

According to this conversion ratio and our forecast of vehicle urea demand, we predict that the increase of vehicle urea to the entire urea market is as follows: it is expected to drive urea consumption of 1.
53 million tons in 2022, 1.
84 million tons in 2023, 2.
21 million tons in 2024, and 2.
65 million tons
in 2025.

Overall, AdBlue is a relatively small market in China, although the overall base is low, but it is currently on the rise
.
Benefiting from the influence of environmental protection policies, the demand for urea for vehicles will be gradually released in the future, creating a new increase
for the urea industry market.
In the case of limited demand for the remaining industrial urea (such as weak demand for wood-based panels and melamine during the real estate downcycle), automotive urea can undoubtedly create a stable demand point
in the future.

The author is a senior analyst at CSC Futures