Why did South Korea's prices soar in less than half a month after China banned the export of urea to South Korea?
Recently, the relationship between China and South Korea has attracted much attention, especially at the end of November this year, when China abruptly suspended the export of automotive urea to South Korea, which had a serious impact on the South Korean economy.
This move triggered a strong reaction in the country and also led to a sharp increase in prices. It can be made clear that China's restrictive measures have had a considerable impact on the South Korean economy and society.
South Korea has been facing a "urea crisis". In late November, China's export review of South Korea's urea solution was largely stalled, sending South Korea into a panic. The Ministry of Finance and *** urgently negotiated stocks for two consecutive weeks, which was only enough to maintain the predicament of 3 months.
Urea is vital to South Korea's economy, especially for a country with 9.9 million diesel vehicles. About 4 million vehicles are equipped with Euro 6 emission standards and require urea to reduce tailpipe emissions. From 2015 onwards, newly registered diesel vehicles must be equipped with a catalytic reduction system. Running out of urea can lead to reduced engine performance and vulnerable components.
Considering the huge impact of commercial vehicles on various industries, the economic and social development of South Korea will be threatened if transportation is paralyzed. South Korea's annual demand for urea is as high as 2.7 million tons, of which 976% is dependent on Chinese imports. In 2021, South Korea turned to China for help due to a more than 12-fold surge in urea**.
Despite calls for a reduction in dependence on China, South Korea has proved unable to achieve urea self-sufficiency. How to get rid of single imports** has become an important issue.
In the past two years, the new crown epidemic has had a serious impact on the global ** chain, and the production cost of South Korea has been rising due to raw materials. Major exporting economies have been affected by the economic slowdown in Europe and the United States, and underemployment and declining purchasing power have constrained the domestic consumer market and exacerbated economic pressures.
Why doesn't South Korea produce its own urea?Although urea used to be produced in-house, by 2013 all urea plants were closed. Even with the mastery of production technology, the operating costs are too high to compete with the major urea exporters.
South Korea lacks resources and imports of key raw materials, resulting in high operating costs. Compared with large countries such as China and the United States, South Korea's urea production is small, making it difficult to achieve economies of scale. Although the technical threshold for urea production is not high, South Korea has increased investment in technology research and development and equipment in an effort to get rid of import dependence.
In the case of scarce resources, it is also impractical to rely on imported raw materials to maintain high production costs, so South Korea's withdrawal from the urea production market is a helpless move. Fortunately, urea is active internationally, with millions of tons flowing through it every year, and South Korea has also obtained a stable channel.
China, as the largest producer and exporter of urea, makes up for South Korea's shortcomings. South Korea should increase its self-sufficiency in important industrial and agricultural raw materials, which is related to the country's economic security and will also help promote scientific and technological progress. South Korea has strong scientific research capabilities in the chemical and energy fields, and is fully capable of mastering and improving urea production technology. However, in a resource-scarce environment, efforts are still needed to achieve a high self-sufficiency rate.
It is suggested that South Korea should take practical and effective measures to actively encourage and support enterprises to expand the production scale of urea and other products, and strive to make South Korea a net exporter of urea. China has strong urea production capacity and rich experience, and if the two sides strengthen cooperation in urea** and technical exchanges, it will not only improve South Korea's urea self-sufficiency rate, but also strengthen the economic ties between China and South Korea, and inject long-term impetus into regional development.
In the face of the sudden shortage of urea, South Korea should quickly formulate effective countermeasures. The air pollution problem has been exacerbated by China's abrupt halt of urea exports, which has paralyzed South Korea's social ** chain, and trucking companies and bus companies are also facing fuel shortages.
In the event of an emergency, South Korea has taken a number of measures, including procuring urea from other countries. For example, 190,000 tons of urea, which have passed the export test, are entering South Korea one after another. Industry insiders**, these automotive urea can keep the Korean automotive industry running for 2-3 months, buying valuable time for South Korea to respond to the crisis.
However, in the context of globalization, it is difficult for any country to achieve self-sufficiency in all raw materials. Therefore, South Korea needs to recognize the importance of China** and actively seek alternatives. To address systemic vulnerability, South Korea needs to strengthen its technological innovation capabilities. In the field of semiconductors, Korean companies have achieved a certain strength, but there is still a gap between them and full independence.
In addition to independent innovation, South Korea should also accelerate the internationalization of its industry and seek diversified ways to import raw materials. The global chain pattern is undergoing restructuring, and South Korea should seize the opportunity to establish strategic partnerships with Southeast Asia, Europe and the United States and other regions to obtain more stable raw materials and reduce the risk of single dependence.
This time exposed the fragility of the South Korean economy, however, it is also an excellent time to look for opportunities in the midst of the crisis. Through independent R&D and diversification of the ** chain, South Korea has the ability and confidence to turn crises into opportunities and lead the industry to a safer and more controllable development trajectory.
It is believed that in the face of this shock, South Korea will become more mature and resilient to meet the challenges brought about by globalization.