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As the shortage of urea water solution continues, cargo trucks form a long line as they wait to buy the fluid being sold along the street in the city of Changwon’s Jinhae District, near the Busan New Port Hinterland Complex, on Friday. (Yonhap News)

Reports that the current shortage of urea water solution is the result of export restrictions recently adopted by China are triggering fears that South Korea could be in for a repeat of the situations experienced with China’s halt of rare-earth elements to Japan in 2010–2011 and its economic retaliation against South Korea over the deployment of a Terminal High Altitude Area Defense (THAAD) system in 2016–2017.

A close examination of the background behind the situation suggests the fears may be overblown, but the internal situation in China also hints that it is likely to continue for some time.

On Oct. 11, China mandated pre-exportation checks of urea, a substance used in agricultural fertilizer and one of the ingredients in diesel exhaust fluid. The country instituted obligatory inspections of 29 items such as urea and potassium and phosphoric acid fertilizer, which had previously been exported without any extra inspections or testing.

Coming ahead of its winter wheat cultivation, the measure was meant to ensure stable supplies of urea and fertilizer in China as global fertilizer and urea prices skyrocketed. The Chinese General Administration of Customs also reportedly imposed a recent ban on bulk exports and sales to individuals in an attempt to head off small-scale overseas direct purchasing.

China’s decision has to do with a coal shortage that has intensified this autumn. Coal is one of the raw materials for urea production, and China has been facing a severe supply crunch since September due to factors including its rocky relationship with Australia, a major coal exporter.

This has led in turn to a shortage of electricity with a reduced operation rate at coal-fired power plants. Extracting urea from coal requires a large amount of power — and China is short on both coal and electricity.

The Korea Trade-Investment Promotion Agency (KOTRA) said on Thursday that the Chinese urea production rate had been calculated at 67.24% as of the second week of October — down by 5.6 percentage points from the same period in 2020. With the shortage of coal translating into lower power production, the combination of the two factors has led to a chain reaction of dwindling urea water solution supplies.

During a period of strained China-Japan relations, Chinese workers at Japan’s Meiko Electronics Co. Ltd. in Wuhan attempt to break through a police line around an area of Japanese residents in September 2012. (AP/Yonhap News)

KOTRA’s trade office in Beijing explained, “The reason the Chinese government has been restricting fertilizer exports is because of a sharp rise in domestic prices amid a shortage of fertilizer supplies in China.”

“In addition to a continued steep rise in the prices of such key chemical fertilizer production materials as natural gas, sulfur and coal, the various local governments have also been controlling energy consumption amid the recent power shortage, resulting in a reduction of chemical fertilizer and urea production and difficulties with supplies,” it said.

Since the problem stems from purely economic factors — in contrast with the rare-earth element and THAAD episodes, which were based on policy decisions by Chinese authorities — a fast solution to the issue appears unlikely.

This spells a long-term headache for South Korea, which relies on China for most of its urea. Chinese urea accounts for two-thirds of domestic imports — and, at 97.6%, nearly all of the industrial urea used to make urea water solution.

According to data from KOTRA, China is the world’s biggest producer and exporter of urea, supplying around 5 million tons of it to the global market each year. At 47.5%, India accounted for nearly half of Chinese exports of urea between January and September 2021; South Korea accounted for another 14%.

The South Korean government is holding emergency meetings as it considers plans for using industrial urea to produce urea water solution for automobiles, known also as diesel exhaust fluid.

But industrial urea contains more impurities than that used for vehicles, and its lower purity level means it cannot be immediately put to use in automobiles, analysts say.

The situation calls for both the diversification of import sources and a resumption of Chinese exports — processes that will each take time.

“In view of seasonal factors and the continued rise in coal and other prices, we cannot expect Chinese urea production to recover any time soon,” KOTRA said.

“If the supply situation in China does not improve, the export restriction measures could remain in place for some time,” it noted.

By Choi Hyun-june, staff reporter; and Jung In-hwan, Beijing correspondent

Please direct questions or comments to [english@hani.co.kr]