Will the latest urea deal ease Australia's supply chain disruptions?

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 Will the latest urea deal ease Australia's supply chain disruptions?
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Highlights

  • The global shortage of urea, a key ingredient in AdBlue, has sparked a major debate in Australia, leading up to a new deal focusing on domestic production of the component.
  • AdBlue is injected into diesel vehicles’ exhaust systems to keep emissions in check and is one of the main components in fertilisers.
  • Urea imports from Indonesia would help keep the domestic fertiliser industry afloat while the new deal would focus on AdBlue’s use case as a fuel additive.

Australia has struck an important deal at a strategic time to help improve the country’s battered supply chain. Supply constraints have impacted production not just in Australia but around the world. Amid this supply shortage, a highly affected industry is that of urea, a key ingredient in AdBlue. A mix of varying factors has led to this shortage. However, the new deal might remove some pressure and pave the way for better opportunities in the coming year.

The said deal has been signed between the Australian federal government and a local producer in the country. At a time when most countries are facing a supply shortage of AdBlue, increased production capacity would allow Australia to cater to these nations. The deal has been struck with local manufacturer Incitec Pivot. Further clarity regarding the deal is awaited as there are no firm indications about when the production would take place.

Also Read: What to expect from the Australian economy in 2022?

Why is global AdBlue shortage a cause of concern?

The ongoing AdBlue shortage has handicapped international supply chains and is becoming an increasingly persistent issue for nations. The reason is simple. AdBlue is a fuel additive with wide-ranging use cases. AdBlue is injected into diesel vehicles’ exhaust systems to keep emissions in check. It is also widely used in the agriculture sector as it is one of the main components in fertilisers.

Increased urea capacity would facilitate faster dispersion of goods.

Without AdBlue, the transportation and agriculture industries remain largely at risk, with the possibilities of delays in essential deliveries such as fresh food for supermarkets. Therefore, the underlying component of AdBlue, urea, is urgently needed in large quantities to satiate the global demand for the product.  

As limits were put on AdBlue consumption in Australia, the underlying shortage of raw materials became more apparent. Consequently, AdBlue prices also shot up, leading up to the point where the government announced the deal.  

Must Read: Has the pandemic added to supply chain disruptions?

Local supply channels to remain intact

The locally sourced AdBlue that is required by the domestic fertiliser industry would continue to function in the same way as before. To avoid disrupting the domestic supply structure of AdBlue, the new deal would focus solely on the transport segment of the country.

 Local AdBlue production and usage to remain intact.

Meanwhile, urea imports would help sustain the domestic fertiliser industry. Up until recently, Australia fulfilled 80% of its urea requirements from China. However, the East Asian country has decided to curb its urea exports to support local manufacturers. At such a time, Indonesia provided some respite to Australia, by promising 5,000 tonnes of refined urea in January.  

Bottom Line

The problem at hand signifies not just the shortage of a key component but also the high dependency of domestic operations on certain essential products. The global shortage of a sole component is enough to cripple massive supply channels and longstanding transportation systems. In a nutshell, countries have learned the valuable lesson of adapting to changing circumstances as supply shortages wreak havoc in all industries. Therefore, focus has now shifted to building stronger domestic supply channels and increased domestic production capacity.

Related Read: Australia seeking new mineral sources amid global urea shortage

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