1850 Items with Over 80% Imported from China... 'China Risk' Can Strike Anytime

Chinese Coal Prices Plunge 57% in Two Weeks
Urea Prices and Inventory Return to Normal
China Eases Urea Export Restrictions

Structural Issues of Import Dependence on Magnesium Ingots and Tungsten Oxide
Need for Long-term Diversification of Import Sources

Daily Situation Check Meeting for Inter-Ministerial Joint Response to Diesel Exhaust Fluid Shortage
[Image Source=Yonhap News]

[Asia Economy Beijing=Special Correspondent Cho Young-shin, Joo Sang-don (Sejong)·Hwang Yoon-joo Reporters] The South Korean government’s recent decision to import 18,700 tons of urea from China soon appears to be influenced not only by diplomatic efforts but also by improved supply and demand conditions within China. China decided to lift the urea export restrictions that had been in place since mid-last month starting on the 10th. However, concerns remain that South Korea’s industries could be affected anytime by China’s situation, highlighting the need for fundamental improvements to mitigate the ‘China risk.’

According to the Pangzheng Futures Exchange in China on the day, the price of coal (for power generation) at Qinhuangdao, which had risen to $2,570 per ton, fell to 1,100 yuan per ton as of the 2nd. This represents a sharp 57% drop in Chinese coal prices in just two weeks. Qinhuangdao is China’s largest coal port, and its coal price is considered the standard price in China. Pangzheng Futures noted that as coal production in China increased, coal prices plunged, reducing the cost burden on Chinese urea producers, and predicted that urea prices would continue to decline until the end of this year.

There is also analysis that China’s urea inventory has returned to normal. Pangzheng Futures estimated that after the Chinese government changed the export quarantine management method for chemical fertilizer items on the 15th of last month, exports were restricted, and China’s urea inventory reached 833,000 tons (as of November 4). Pangzheng Futures added that this is the highest level in the past five years.

With the improvement in China’s supply and demand situation, South Korean companies are preparing to produce urea solution. The government and companies are currently discussing schedules and volumes together so that production can begin immediately once the imported urea arrives domestically. Lotte Fine Chemical, the largest domestic urea solution manufacturer, recently suspended the operation of retail production lines for 3.5ℓ and 10ℓ sizes due to urea shortages and is only operating the 20-ton bulk line used for trucks. Lotte Fine Chemical plans to finalize the operation of the vehicle-use production line in consultation with the Ministry of Environment and other government bodies. Typically, 1 ton of urea can produce 3 tons of urea solution. The current import volume will enable the production of approximately 54,000 tons of urea solution.

A chemical industry official said, "The domestic daily consumption of urea solution for vehicles is 250 to 300 tons, and with the pre-contracted export volume from China, it will be possible to produce six months’ worth of vehicle-use urea solution domestically," adding, "After consultation with the government, production will focus on product groups with urgent demand."

However, calls for fundamental measures to prevent raw material crises originating from China are gaining strength. This urea solution crisis reveals one aspect of the ‘China risk’ South Korea faces. If China restricts exports, South Korea, which is highly dependent on China, inevitably suffers immediate impacts.

Besides urea, there are countless raw materials that South Korea depends on China for absolutely, such as magnesium ingots and tungsten oxide. According to the Korea International Trade Association, as of January to September this year, there are 3,942 raw material items with an import share of over 80% from a single country. Among these, China accounts for the largest number with 1,850 items, followed by the United States with 503 items and Japan with 438 items.

Magnesium ingots, essential raw materials for producing aluminum alloys used in lightweighting automotive bodies, vehicle seat frames, and aircraft parts, are 100% imported from China. Recently, due to power shortages, the Chinese government has controlled production, causing supply shortages. This raises concerns about the possibility of a ‘second urea solution crisis.’

Tungsten oxide, used in medical devices and semiconductor manufacturing by utilizing photocatalytic and luminescent properties, also has a 94.7% dependence on China. Lithium hydroxide, a key material for secondary batteries, depends on China for 83.5% of its imports. Additionally, neodymium permanent magnets, used to achieve miniaturization and lightweighting of electronic products, are mostly imported from China. From January to September this year, 86.2% of total imports, worth $186.75 million, were sourced from China.

This situation also reflects the government’s focus on Japan alone in nurturing the materials, parts, and equipment industry rather than China. In response to Japan’s export restrictions in 2019, the import share of photoresist, a core semiconductor manufacturing item, from Japan decreased from 86.5% in 2020 to 81.2%, and fluorinated polyimide dropped from 93.8% to 93.1% during the same period.

An official from the Korea International Trade Association said, "For raw materials with high dependence on specific countries, especially China, like the recent urea crisis, the ‘China risk’ can materialize at any time," and added, "It is necessary to pursue long-term diversification of import sources, focusing on items with high dependence on specific countries including China."

This content was produced with the assistance of AI translation services.