Concerns persist regarding the urea crisis, as Chinese authorities have imposed a blockade on urea exports to South Korea. (Image courtesy of Yonhap)
SEOUL, Dec. 6 (Korea Bizwire) – Concerns persist regarding the urea crisis, as Chinese authorities have imposed a blockade on urea exports to South Korea, with speculation that this situation may extend into the first quarter of next year.
The sudden suspension of industrial urea clearance from China to South Korea has intensified the supply chain risk originating from China. Although the South Korean government asserts that it possesses ample stockpiles and has secured alternative import sources, on-site observations reveal signs of hoarding.
Market anxiety stems from the urea crisis experienced two years ago. The South Korean government has expressed its intent to engage with the Chinese government to expedite the release of stalled urea shipments. However, Chinese authorities have only provided verbal assurances of seeking an amicable solution.
On November 30, China’s General Administration of Maritime Affairs, comparable to South Korea’s customs office, halted the clearance of urea exports from local Chinese companies bound for South Korea. Urea is a crucial material for producing urea water, utilized to mitigate pollutants (nitrogen oxides) emitted by diesel vehicles. South Korean companies heavily depend on Chinese urea for producing urea water.
The Ministry of Trade, Industry, and Energy (MOTIE) clarified that it perceives the suspension not as a formal export control but as a temporary measure considering China’s domestic supply and demand. Despite having a three-month stockpile and alternative import sources in Southeast Asia and the Middle East, there are indications of stockpiling in areas previously affected by the urea crisis. Gas stations have also begun either increasing urea prices or imposing restrictions on individual purchases.
In 2021, during the shortage, urea imports from China accounted for 83.4 percent of the total. Responding to the crisis, the government airlifted urea and urea water from overseas, including Australia, Vietnam, and Indonesia. Despite pledges to expand the supply chain, there has been minimal diversification, with urea imports from China accounting for 91.8 percent of the total in the current year.
There are apprehensions that if China’s urea export restrictions persist into the first quarter of the next year, a domestic supply shortage may ensue. While China has expressed a willingness to resolve urea customs clearance issues with South Korea, prevailing analyses suggest that even if the current urea export hold is lifted, an ongoing export restriction trend is likely due to China’s internal supply and demand dynamics.
In light of these concerns, a recent report from an online platform in the Chinese chemical and fertilizer industry indicates that major Chinese urea companies have agreed to cap total exports next year at 944,000 tons, refraining from exports until the first quarter. This decision is attributed to dwindling urea stocks at Chinese companies amid increased urea imports by India amidst volatile international commodity prices.
Ashley Song (ashley@koreabizwire.com)
