[Initial Insight] Another Element Export Restriction, Growing China Risk

Profit-Driven Companies, Complacent Government
Two Years of Stagnation in Diversifying Element Supply Chains

October 15, 2021. When China faced a shortage of urea due to domestic coal and power shortages, it announced the mandatory inspection of urea exports. This was essentially a declaration of export suspension by China, the world's largest urea producer. As a result, South Korea, which depends on China for 97.6% of industrial urea?the raw material for urea solution?was in a critical situation. However, diplomatic and trade officials dismissed this as a mere issue of urea fertilizer supply and did not take it seriously. Two weeks after China announced the export suspension, on October 29, then Foreign Minister Chung Eui-yong met with Chinese Foreign Minister Wang Yi in Italy, but the urea issue was not even brought up at the talks.

The related government measures came more than a week later. When the shortage of urea solution threatened to paralyze logistics and industry, an emergency Cabinet meeting was finally held, and countermeasures were announced. The main points included importing 20,000 liters of urea solution from Australia using military transport planes and urgently importing 200 tons of urea from Vietnam to diversify import sources. Domestic production of urea was also considered. The National Assembly joined in by proposing resource security laws and other measures to overhaul the crisis management system. This was an extremely belated response. However, the government’s regret over this delayed reaction raised hopes that at least the system would be properly reformed this time.

Jang Young-jin, the 1st Vice Minister of the Ministry of Trade, Industry and Energy, who went on-site inspection related to diesel exhaust fluid, is looking at the displayed products while listening to the explanation of Park Seok-jae, the store manager, at Lotte Mart World Tower branch in Songpa-gu, Seoul on December 6. Photo by Jo Yong-jun jun21@

More than two years have passed since then. China is once again using urea as a resource weapon to check South Korea, but it seems nothing has changed on our side. This is confirmed by statistics. According to data from the Korea International Trade Association, the dependence on Chinese industrial urea, which had dropped to 85.9% in February this year, surged back to 91.8% in October.

Since urea production is not limited to a specific country like ultra-high purity semiconductor materials, why has the dependence on China not decreased? The answer is simple: Chinese urea prices are significantly cheaper than those from other countries. It is only natural that private companies, which seek profit, choose the cheaper Chinese urea. However, companies are not in a position to raise their voices. If they rely entirely on Chinese urea for immediate profit and face a production halt, they will bear all the losses themselves. Just like the stock market adage "Don't put all your eggs in one basket," companies need to diversify their supply sources as a risk management measure. This is especially true when the international trade order is unstable, as it is now.

The government is not free from responsibility either. While China is accelerating the "weaponization of resources" in response to Western countries’ containment efforts, including the U.S., and expanding export restrictions across the board, our government has repeatedly called only for diversification of import sources like a broken record. Now is the time to demonstrate execution capability. The government and companies must work as a team to create a roadmap for building diverse supply chains and achieve concrete results.

The political sphere also needs to stop partisan conflicts and show a sense of urgency. It took more than a year just for the “Basic Act on Support for Supply Chain Stabilization for Economic Security,” which includes provisions for fiscal, tax, and financial support systems to address supply chain issues, to pass the National Assembly. The “Special Act on National Resource Security,” proposed to manage the stock status of key minerals held by public institutions and private companies at the national level, is still pending. While major countries such as the U.S., Europe, and Japan are responding closely to supply chain risks like never before, we appear to be idle. The end of China’s raw material export controls, which began with urea, remains unknown.