Korea continues efforts to diversify urea supply chains

[Photo by Yonhap]

The South Korean government will increase the number of countries covered by tariff quotas as part of its continuing efforts to diversify sources for urea solutions away from the nation’s heavy reliance on Chinese urea supplies. The government is also looking to resume the domestic production of urea, which has been suspended since 2011, while deciding to subsidize the additional transportation costs of importing urea from countries outside China.

These measures to secure urea solutions supply were drawn up during a ministerial meeting on economic security and the supply chain that took place at the Seoul government complex on Monday.

The Korean government will extend the tariff quotas on urea until 2024, allowing duty-free imports of urea from Indonesia and Saudi Arabia. The quotas were initially supposed to end at the end of the current year.

The government will also cover some of the additional ocean transportation costs of urea imported from countries further away than China until April 2024. Based on the contracts, Korea currently has a 4.3-month supply of vehicle urea in private and public stockpiles, to which the Public Procurement Service will add about 6,000 tons, or around a month’s supply. With small and medium-sized enterprises projected to import another few thousand to more than 10,000 tons of urea, the total supply amounts to around six months of urea for diesel vehicles operating in the country.

The process of importing finished urea products will also be streamlined for companies looking to enter the market. Although finished urea products are rarely imported due to their weight, the inspection period will be significantly reduced to 5 days from 20 days.

During the ministerial meeting on Monday, chaired by Deputy Prime Minister and Minister of Economy and Finance Choo Kyung-ho, government officials also reviewed the supply and demand for other items with supply chain risks and discussed countermeasures, as well as discussing follow-up measures to the supply chain framework act passed by the National Assembly.

The government decided to extend duty-free access for fertilizer ammonium phosphate dibasic until the first half of 2024. This is expected to expand imports of ammonium phosphate from Morocco, where the duty rate is 6.5 percent.

“Our current dependence on China for ammonium phosphate is 95.7 percent, but we have secured stocks to last us until May 2024, including 10,000 tons of finished products and 30,000 tons of raw materials,” an official from the Ministry of Economy and Finance said, commenting on the potential expansion of domestic production of the raw material in case of prolonged supply and demand instability.

The government will also provide support for POSCO Future M Co. to facilitate the early expansion of its artificial graphite production plant aimed at the domestic market’s self-reliance and diversification, which is expected to be operational in the first half of 2024 if expedited approval is granted. Electricity and water, as well as regulatory support, are also under consideration for new artificial graphite and natural graphite production plants and the government is also considering importing graphite from Tanzania.

The supply of graphite, a key material for secondary battery anode materials, is also highly dependent on China, who accounted for 94.4 percent and 93 percent of natural and artificial graphite imports to Korea as of 2022. The Chinese government has been implementing graphite export controls since December 1, 2023, and in response, Korea took measures to expand gallium stockpiles for 2024 to 100 days’ worth of supply from the current 40 days. The supply of gallium, a semiconductor and display material, is also highly reliant on China and the Chinese government has imposed export controls since August 2023.

For its part, Korea confirmed a specific roadmap for the establishment of a pan-governmental supply chain control tower and the creation of a supply chain stabilization fund ahead of the enforcement of the supply chain act in June 2024. The fund will be established at the Export-Import Bank of Korea with a minimum of 5 trillion won ($3.8 billion) and a maximum of 10 trillion won.