The Canadian DEF market: Where are the main opportunities and challenges? - Integer
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The Canadian DEF market: Where are the main opportunities and challenges?

Posted On: 26-07-2018 By: Alicia Bennett

By Fabricio Cardoso, Research Manager, Integer Research

Diesel exhaust fluid (DEF), also known as fluide d’échappement diesel (FED) in Québec, has been required by Canadian trucks for nearly ten years. Although DEF is a relatively simple product – a 32.5 wt% high-quality urea solution suitable for automotive systems, (and cannot be made of fertilizer-grade urea) – its supply chain has proven to be quite complex, with consolidation and acquisitions taking place on a regular basis. Yet it remains a fragmented market with several players operating in clusters. But why is this product so important for trucks, and why are there business opportunities emerging in this industry?

It starts by understanding the regulation in place for emissions of criteria air pollutants (NOx, particulates, CO) and greenhouse gases (CO2) from mobile sources. Canada has aligned its standards with those in place in the US, and currently follows EPA 2010 requirements for medium and heavy-duty trucks. This led to most Class 4-8 diesel trucks being equipped with Selective Catalytic Reduction (SCR) technology, and therefore consuming DEF.

Truck sales in Canada typically represent 10-11% of those in the US, however we estimate DEF consumption in the country to account for only 8% of the North American totals. This is particularly due to lower average mileage in Canada than in the US, although the share of Class 8 trucks, which represent the bulk of DEF consumption, is higher in Canada.

The DEF supply chain has also developed in different ways in both countries. In the US, 18 urea plants are capable of producing DEF-grade urea and manufacture both final-strength solution or 50 wt% urea liquor to be diluted at separate facilities closer to the main consumption areas. These plants supply the bulk of the country’s requirements, although some areas also rely on imported prilled urea, particularly the East and West Coasts.

In Canada, the situation is quite different as only two urea plants can make DEF-grade urea: Yara in Belle Plaine, SK, and CF Industries in Courtright, ON. Therefore the country relies more on imported sources, notably Yara operates an import terminal near Montréal, QC, and several other companies manufacture DEF from prilled urea, particularly in Central and Western Canada. Facilities diluting from 50% urea liquor also exist, but in a much smaller number.

DEF can be supplied in bulk to private fleets, sold in packaged options (typically 2.5 gallon jugs), or retailed at dedicated pumps installed at truck stops. There are nearly 3,000 truck stop locations with DEF pumps in North America, but only 200 in Canada, with over half of them concentrated in two provinces, Ontario and Alberta.

DEF truck stop network in Canada, July 2018

Bulk distribution of DEF to private fleets corresponds to most DEF demand in Canada, with a mix of domestic and foreign companies actively operating in the country. Brenntag, Recochem, Irving DEF, Yara, Old World Industries and MacEwen DEF are among the major DEF suppliers, with some of them holding a nationwide presence, while others concentrate their efforts on one or two provinces. As in the US, some consolidation is expected in the coming years, as economies of scale reduce production and logistics costs. On the other hand, longer distances and metropolitan areas spread out in the country would allow smaller businesses to conserve a local approach and survive in this marketplace.

Bulk DEF distributors by Canadian province

Source: Integer Research

There is still a lot of growth potential for the Canadian DEF market. There are approximately 460,000 Class 8 trucks in activity the country, but we estimate only 42% of these trucks to be SCR-equipped in 2018. On the other hand, we expect this number to reach 85% in 2027, and DEF consumption would more than double within the next ten years. Will the Canadian DEF supply chain keep developing in a different way?

Integer has been tracking the US and Canadian DEF markets from their start in 2009, and releases two reports covering these markets: The North American SCR & DEF Forecast Service, published annually, and The North American Monitor, published on a quarterly basis. We also develop bespoke consultancy services to support companies in their market entry strategies, competitive landscape assessment and merger & acquisition evaluations.

To talk to us in more detail about North America’s DEF market dynamics, call Fabricio Cardoso, Research Manager on (973) 607 4142 or email fabricio.cardoso@integer-research.com.