The Chinese customs authorities recently suspended shipment of industrial urea to South Korea. They are said to have held off urea shipments as a short supply of the raw material at home is looming. Reportedly, major Chinese fertilizer producers will stop exporting urea until the end of the first half of next year to meet domestic peak-season demand. These developments raise concerns in Korea about yet another severe shortage of urea solution.
Beijing's urea export curbs two years ago caused a shortage of urea solution in Korea that set back freight transportation by trucks and paralyzed related industries.
Such anxiety is attributable to Korea's high dependence on China for urea. It imports 91 percent of urea it needs from the country. The dependence ratio is way above 71 percent in 2021. Soon after Beijing's urea export restriction two years ago, Seoul sought to reduce the nation's dependence on China through diversification of imports, but the situation has not changed much.
Fortunately, however, the possibility of a severe shortage of urea solution recurring immediately looks small for now. The nation's urea inventory as disclosed by the government is enough to last about three months. And yet the government must work out measures in case of a prolonged export restriction by China. Major Chinese fertilizer producers are said to have agreed to reduce their annual urea exports to a fifth of their usual volume next year.
Urea is used to make fertilizers, and urea solution is used in diesel vehicles to reduce exhaust gas. A urea supply disruption can have a critical influence on cargo transportation by diesel trucks. Because of its high dependence on China for urea imports, Korean businesses cannot but feel anxiety at any urea-related issue in China.
Korea imports all of the urea it consumes. According to Korea Customs Service, China accounted for 91 percent of urea imported from January to October. Thanks to the nation's efforts to diversify imports after experiencing urea solution shortage two years ago, the ratio of Chinese urea imports fell to 71 percent in 2021 and further to 67 percent in 2022, but bounced up this year.
Korea tried to keep diversifying imports, but urea importers eventually turned to China again because the raw material made in China is competitive in terms of price, reflecting transportation costs.
Korea cannot let the same problem happen over and over. The fundamental solution is to reduce its dependence on China. Otherwise, a supply risk from China can become a reality anytime. The government needs to consider offering incentives in the way of transportation costs to importers from countries other than China.
Korea is vulnerable to China-related risks in securing not only core minerals, but also many intermediate goods. Korea imported 9,308 items in the first half of this year for more than $10,000 per item, and the ratio of dependence on China was 70 percent or higher for 2,113 of them. In the case of rare earth minerals essential to manufacturing semiconductors, Korea imported 79.4 percent of them from China.
If Korea cannot reduce its excessive dependence on China, its industries will inevitably suffer damage from Beijing's export curbs. The government must not let up searching for ways to reduce dependence on China for raw materials. The recent incident awakens Korea again to the importance of lessening its excessive dependence on a single country.
The government must not only support import diversification, but also build up stockpiles. Considering the practical difficulty of disregarding the price competitiveness of Chinese imports, however, the government should not neglect diplomatic efforts to keep up stable trade relations with China.
In the meantime, the National Assembly must back up the government's efforts to stabilize the nation's supply chains. The government worked out supply chain measures after a shortage of urea solution in 2021, but a related bill remains unprocessed for a year and three months amid political strife over such issues such as impeachment and a special prosecution probe. The government must try harder to diversify supply chains and the Assembly must process the bill quickly.
