[Reporter’s Notebook] "Diversification of Yosusu" Empty Promises for 2 Years

Concerns over a shortage of urea solution have once again swept across the Republic of Korea. Reports have been received by the Korea Customs Service that the export of industrial urea imported from China has been blocked. Although customs inspections have been completed, it is known that China is unusually withholding the shipment of urea. This comes about two years after Korea experienced a "urea solution crisis" due to China's export restrictions.

The government stated that "the situation is different from the past." It explained that more than three months' worth of stockpiles have been secured, so there will be no supply problems until early March next year. Since alternative supply routes have already been established, it is expected that there will be no severe supply disruptions leading to a crisis.

However, the high dependence on China for urea solution remains unchanged from before. At the end of 2021, the proportion of Chinese urea imports was close to 97%. It is essentially a structure completely reliant on China. When the shortage of urea solution occurred, the government lowered the proportion of Chinese imports to 66% through diversification of import sources. Although it seemed successful, the share has returned to the 90% range again this year.

This is because the government was only focused on preventing the immediate crisis. Once the urea solution situation calmed down with short-term measures, it neglected mid- to long-term plans for structural changes. The share of Indonesian urea imports, considered a key country for diversification, was in the 0% range as of the first half of this year. The shares from Vietnam and Saudi Arabia are even smaller. There is no information on what happened to the various measures that were proposed, such as expanding production facilities, developing alternative catalysts, and expanding facilities related to substitutes.

Although there were recent warning signs, the government maintained an optimistic view. Even when some foreign media such as Bloomberg reported in September that China had blocked exports of urea for fertilizer use, the government drew a line by saying, "This does not apply to vehicle use." The official government statement was that there were no price issues or signs of export restrictions for industrial use, so a crisis was unlikely.

Currently, government officials seem to believe that since there is no short-term supply problem, they can quickly prepare countermeasures in the meantime and manage the situation stably. However, there are invisible losses as well. The industry is shaken, public anxiety increases the possibility of hoarding, and the mobilization of officials to manage the situation is clearly a waste of national resources.

Vague announcements such as "we will diversify import sources" or "we will support market development," as was done two years ago, are not acceptable. To avoid repeating the same situation, an analysis of the causes of diversification failure must be undertaken. Diversification attempts must become a more economical option for companies than importing from China. If necessary, the government should directly fund and encourage private companies to diversify. Otherwise, Korea will have to repeat empty calls for diversification again in a few years.