Could this be a bigger threat to ASX shares in 2022 than COVID?

Experts are warning of more volatility for ASX shares as we head into the new year, but there’s a growing risk to the economy in 2022 that might be harder-hitting than COVID-19.

This risk stems from the severe shortage of a little-known chemical called AdBlue. It’s an additive used in diesel engines, and Australia could be just weeks from running out of the diesel exhaust fluid.

How AdBlue can hit ASX shares

The crisis is threatening our supply chains as just about all essential goods, such as food and medicine, are transported by diesel-burning trucks.

The problem is so serious that the Federal Government has set up a high-level emergency task force, reported the Australian Financial Review.

AdBlue is in short supply globally because Russia and China aren’t exporting as much high-grade urea.

Countdown to disaster

AdBlue is a mixture of organic compound urea and deionised water. It is essential to cut harmful emissions from diesel engines as it converts nitrogen oxides into nitrogen and water.

DGL Group Ltd (ASX: DGL) told the AFR that it had just six weeks of stock in its warehouse and was struggling to fulfil orders. DGL supplies 60% of the Australian market.

The supply crisis is exacerbated by panic buying from trucking companies. It’s much like the toilet paper fiasco that we witnessed at Woolworths Group Ltd (ASX: WOW) and Coles Group Ltd (ASX: COL) at the onset of the pandemic.

ASX shares in the Adblue firing line

As Australia sources urea from other countries, such as the Middle East, Industry and Energy Minister Angus Taylor said that more shipments of the product would arrive soon. This could give the industry an extra two weeks of supply – as long as companies do not hoard the chemical.

A range of ASX shares may be impacted by a supply shortage, including supermarkets and retail shares such as the Australian Pharmaceutical Industries Ltd (ASX: API) and Wesfarmers Ltd (ASX: WES).

Petrol station companies such as Ampol Ltd (ASX: ALD) and Viva Energy Group Ltd (ASX: VEA) are also struggling with supply levels of AdBlue.

Hang on tight in 2022

The AdBlue crunch comes at a time when ASX investors appear to be getting more comfortable with the Omicron COVID mutation.

There are early promising signs that the more infectious variant isn’t as deadly as initially feared. It may even help end the pandemic by crowding out more severe versions of COVID.

But the AdBlue shortfall shows why we can’t grow complacent. Even if the COVID threat recedes, ASX shares still might have a wall of worry to scale in 2022.

The post Could this be a bigger threat to ASX shares in 2022 than COVID? appeared first on The Motley Fool Australia.

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Motley Fool contributor Brendon Lau has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia owns and has recommended COLESGROUP DEF SET and Wesfarmers Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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