Fears grow that China’s suspension of urea exports could trigger second crisis

[Photo by Yonhap]

The global urea supply chain is in for turmoil again as the Chinese government ordered some domestic fertilizer producers to suspend urea exports.

On Thursday, Bloomberg reported that several fertilizer producers in China stopped signing new urea export contracts from early September following a government directive. The export restrictions are currently known to apply only to urea, one of the raw materials for fertilizer. Authorities are believed to have imposed the restrictions as domestic urea prices surged.

Low inventories combined with export growth have driven up urea prices in China, according to Bloomberg. Urea futures prices on China’s Zhengzhou Commodity Exchange jumped about 50 percent over a seven-week period from mid-June to the end of July.

China is the world‘s largest producer and consumer of urea. If China restricts its urea exports, it could lead to a shortage in the global supply, triggering a sharp increase in global urea prices. This could also raise prices for urea-based fertilizers, sending another shockwave through the global agricultural market.

There are also concerns about a spike in the price of urea water for vehicles, made by dissolving urea in water.

South Korea already experienced a urea shortage crisis in October 2021 after China suddenly imposed export controls. At that time, the price of urea, which is usually around 10,000 won ($7.51) per 10 liters, jumped to nearly 10 times that level.

The Korean government and industry players have attempted to diversify urea supplies since then, but imports of urea from China, which plummeted last year, have been on the rise again in 2023. According to Bloomberg, South Korea imported 196,000 tons of urea from China through July this year, making it the second-largest importer in the world.

As concerns grow about a potential “second urea crisis,” experts note that the Korean government’s diversification efforts are having little effect as Chinese urea has a competitive advantage in the supply chain.