[In-Depth Look] Raw Material Supply and Demand (資源需給), Contrasting Concerns of South and North Korea

[Asia Economy Reporter Hwang Yoon-joo] Failure to secure raw materials necessary for industry in a timely manner can escalate into a national issue. A representative case is the recent urea solution shortage. Besides urea solution, items with high dependence on China could face similar situations at any time. According to data from domestic research institutes, there are 604 items with high dependence on China, and a significant portion of these belong to mineral resources. Minerals with high dependence on China include lithium, magnesium, silicon, and rare earth elements. Lithium is used in chemicals and secondary batteries, magnesium minerals are used in steel, marine vehicles, and the aviation industry. Additionally, silicon minerals are raw materials for semiconductors, and rare earth elements are essential core materials for IT and eco-friendly industries such as chemicals, electric vehicles, and wind power generation.

Since minerals are used not only in traditional industries but also as essential materials for the 4th industrial revolution, high dependence on specific countries inevitably increases supply risk. Raw materials for the 4th industrial revolution have particularly high supply monopolies in certain countries due to the uneven distribution of deposits and environmental constraints. For example, China’s market share of rare earth elements exceeds 80%. Although the United States and Australia also have rare earth elements, environmental issues arising from the production process force reliance on China. Due to these structural problems, supply instability increases depending on policy changes in resource-owning countries. Therefore, for South Korea, which has a high import dependence rate, it is very important to prepare measures to stabilize supply.

North Korea has abundant industrial mineral resources. In particular, ammonia (urea), the raw material for urea solution which has recently become a major issue, is produced in North Korea. North Korea has factories producing ammonia from coal (lignite), such as the 2.8 Vinalon Complex (Hamheung, South Hamgyong Province), the 7.7 United Enterprise (Kyonghung, North Hamgyong Province), and Hungnam Fertilizer (Hamheung, South Hamgyong Province). The ammonia production capacity of these factories is 687,000 tons per year. South Korea’s annual import of vehicle urea solution from China is reported to be 80,000 tons. Even if only 7% of North Korea’s urea production capacity is supplied to South Korea, the vehicle urea solution problem can be easily resolved.

Other raw materials exposed to supply threats from China can also be secured from North Korea. First, magnesite, the raw material for magnesium, is more abundant in North Korea, the world’s number one deposit country, than in China, which dominates the global market. In addition, quartz (silica) minerals, the raw material for silicon, are abundant in North Korea, and rare earth elements have reserves of about 20 million tons, ranking fourth in the world. While South Korea struggles with raw material supply stability, North Korea, conversely, cannot export to the global market due to UN sanctions.

Especially at a time when mineral prices are soaring, the losses North Korea suffers from export suspension are enormous. In 2016, the year before UN sanctions, North Korea’s underground resource export value was $1.44 billion, but after the sanctions, it dropped sharply to $640 million in 2017, $47 million in 2018, $33 million in 2019, and $17 million in 2020. Over four years after the UN sanctions, North Korea has suffered export losses exceeding $5 billion. In particular, for coal, which accounts for the largest share of exports, the estimated annual loss due to rising international prices alone exceeds $1.1 billion. The United States appears unwilling to lift UN sanctions unless North Korea abandons its nuclear weapons.

It is hoped that North Korea and the United States will make small concessions and also consider the lives of North Korean residents. Human rights are a universal value that applies to the ‘quality of life of residents.’ It is hoped that both sides will find a solution with empathy and also resolve the raw material concerns between South and North Korea.

Choi Kyung-soo, Director of the North Korea Resource Research Institute

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