[News Focus] Elixir for diesel cars puts Korea’s supply chain policy to test

South Korea faces a potential retail crisis ahead of winter after China imposed a de facto export ban on diesel exhaust fluid -- an emissions control liquid solution essential for most cargo trucks here.

According to industry sources Wednesday, Korea is running dangerously low on DEF supplies, after Chinese authorities last month began mandatory customs inspections and practically banned exports of the product.

DEF is a liquid solution that goes inside diesel vehicles. The product has to be refilled periodically, especially for cargo trucks, which travel long distances. DEF’s role is to react with harmful emissions and turn them into harmless water and gas.

In 2015, Korea strengthened environmental regulations and mandated diesel vehicles to install a DEF system inside them. When the DEF tank is empty, diesel cars might not start or even shut down on the road.

The problem is, Korea imports 97 percent of its DEF supplies from China. Korea currently has 9.99 million registered diesel vehicles. Of them, at least 2 million passenger cars and 2 million cargo trucks are equipped with the DEF system and won’t run without the liquid.

As to why China suddenly tightened its grip on DEF exports, experts say that it’s closely related to the world’s No. 2 economy’s massive power crunch.

China is currently suffering an unprecedented coal shortage after the country stopped coal trade with Australia in the aftermath of recent trade disputes. China is therefore experiencing a power crisis, and doesn’t have enough coal for other purposes. To reduce coal consumption, China wants to produce less DEF, which uses ammonia extracted from coal as a raw material.

On Tuesday, Korea convened an emergency pan-government meeting and requested the Chinese government to resume DEF exports for urgent demand.

Sourcing DEF from other neighboring countries such as Russia or repurposing industrial DEF for diesel vehicles were suggested as options during the meeting, but industry officials cast their doubts on the proposals.

“DEF imported from Russia would take more than two months to arrive, and shortening the period would raise logistics cost significantly. Indonesia is limiting DEF exports due to China. Japan produces DEF, but just enough for domestic demand, so it’s difficult to expect DEF imports from Japan,” an industry source said.

Industrial DEF has a different component and using it for automobiles hasn’t been verified yet, another source said.

Korea stopped production of DEF after it became much cheaper to import it instead. In a worst-case scenario, the government is mulling supplying DEF first to firetrucks or cargo trucks.

Ten liters of DEF normally go for between 9,000 and 12,000 won at gas stations. The market price has more than doubled in the past few days, but domestic DEF retailers are holding on to their stocks. Online, DEF can even trade at around 70,000 won to 100,000 won.

By Kim Byung-wook (kbw@heraldcorp.com)