China's urea export curb adds shipping woes for South Korea

[Photo by Kim Ho-young]

Crunch in supply of urea water solution adds shipping woes for South Korea on top of spike in fuel costs and shortage of container ships following China’s urea export limit.

The Korean government and companies are scrambling to secure urea, as China has been restricting its shipments of the raw material essential for various industries. The country imported 811,932 tons of urea in 2019, with a bulk of 66 percent or 552,421 tons shipped from China. Indonesia accounted for 13.8 percent, Qatar 10.5 percent, Bahrain 3.9 percent, Saudi Arabia 3.4 percent and Iran 1.3 percent. Of the total imports, about 9 percent or 74,354 tons were used for vehicles and industrial purposes.

[Graphics by Choi Mira and Song Ji-yoon]

In Korea, Lotte Fine Chemical Co. commands the largest market share of more than 50 percent in the urea water market. Lotte Fine Chemical, KG Chemical, Huchems Fine Chemical and H-Plus Eco represent a combined 70 percent, while around 50 small- and mid-sized companies take the remaining 30 percent.

Pure-play urea manufacturers in Korea went extinct by 2013 due to weak price competitiveness compared to Chinese manufacturers using coal to produce the material.

“Korea didn’t have to produce urea domestically because it was always able to import enough amount of it from overseas,” said Kim Pil-soo, a professor from Daelim University College. “But now we have no alternative but to diversify markets for urea imports.”

An industry official said most urea water producers could stop production in November, a move that could deal a massive blow to the retail and distribution industry. About 90 percent of imported urea is used for fertilizers and urea fertilizers are coated, making them unavailable for urea water production.

[Graphics by Choi Mira and Song Ji-yoon]

The Korea’s Ministry of Trade, Industry and Energy said on Wednesday that it is collecting opinions from the industry and figuring out how much damage the China’s export restrictions would do on domestic companies.

The industry estimates there are about 3.33 million diesel trucks in Korea, of which 20 million cannot start or limit engine power without urea water. The supply shortage of urea water could paralyze industries including construction and transportation with the suspension of truck operations. More than 80 percent of urea water supplies go to large lorries and trailers.

As the country has strengthened its environmental regulations, urea water has become necessary for small trucks and even passenger cars run on diesel. The industry estimates there are 20 million non-freight vehicles that need urea water in the country. Sales of urea water more than tripled from 62.52 million liters in 2015 to 220 million liters in 2020.

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