[뉴스쉽] The urea water butterfly effect from China… Where are you going?

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[그게 뭔데?] What is ‘number of elements’

The overall Korean economy is in turmoil due to the urea butterfly effect from China. As the name suggests, urea water is a combination of ‘urea’ and ‘water’. It is a transparent liquid in which urea, the raw material of commonly known urea fertilizer, and pure water are mixed at a ratio of 32.5% and 67.5%. It is mainly used to clean the exhaust gas emitted by diesel vehicles. It is known under the trade name ‘Adblue’. It is not involved in driving the vehicle itself, but when the urea water runs out, the same thing happens as the oil runs out. The engine cannot be started again until urea water is added, or the engine may be turned off. For diesel vehicle drivers, it is like fuel.

At a gas station there is a small nozzle that looks like a gas dispenser.  Instead of gasoline or diesel, it is a nozzle with 'urea water' written on it.  This is the 'number of elements'. Diesel vehicles emit nitrogen oxides. Nitrogen oxides cause various respiratory diseases such as bronchitis and pneumonia, and are known to be a major cause of air pollution. It is the main cause of ultrafine dust.

In Europe, standards regulating exhaust gas emissions from diesel vehicles were introduced in 1992 to protect the air environment. Starting with ‘Euro 1’, the ‘Euro 6’ standard has been applied since 2014. In Korea, regulations began to follow in 1994. Diesel vehicles that did not meet emission standards were banned from sale. In particular, the standard for ‘Euro 6’ has become so strict that the word ‘the end of diesel vehicles’ comes out.

..Manufacturers have developed various exhaust gas aftertreatment devices to reduce nitrogen oxides. One of them is Selective Catalytic Reduction (SCR). If interpreted literally, it means ‘selective reduction catalyst facility’. It is a technology to reduce nitrogen and water by adding urea water to exhaust gas mixed with nitrogen oxides, and it is known as the most effective technology for decomposing nitrogen oxides. SCR technology was introduced in large trucks early, and as the emission standard was strengthened by Euro 6, SCR technology, which injects urea water, is being applied to most diesel passenger cars. Currently, about 2 million units (60% of 3.3 million diesel vehicles in Korea) are equipped with SCR. If you remove or damage the SCR without permission, you may be sentenced to up to one year in prison and a fine of up to 10 million won.

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[뭐가 문제야?] The number of elements has disappeared.

However, this important ‘number of elements’ was lacking. At each gas station, a ‘out of stock’ notice was posted, and long lines lined up at places selling urea water. On a used trading site, the number of 10 liters of urea, which could be purchased for 8,000 won to 10,000 won, was traded at more than ten times the price. It has been observed that ambulances and fire trucks, which must be dispatched in a crisis situation, may come to a stop, and may even lead to a garbage riot. Truck drivers stumbled due to a shortage of urea water. Trucks with relatively high nitrogen oxide emissions require a much higher number of elements. Trucks move raw materials and finished products such as steel products and automobiles. If the truck stops, there will be a disruption in logistics, and even manufacturing plants that do not receive raw materials can be closed. At one time, there was a forecast that there was only enough urea for vehicles left to last for about two months. At this point, concerns arose that ‘Korea could stop’.

..The shortage of urea water first appeared in the domestic media at the end of last month. On November 2nd, a meeting of the government’s related ministries was held. The government announced that it would import urea water from Australia and Vietnam, and announced measures to diversify imports and mobilize military aircraft for airlift. The government began to assess the emergency situation. A plan to convert the number of urea used in factories for industrial purposes to automobiles was also considered. However, it is unknown whether it can be converted to automobiles due to its low purity in industrial applications. There have even been claims to allow the SCR device to be temporarily disabled so that the number of elements is not needed at all, but the prevailing opinion is that it is not realistic due to environmental and technical problems. There are cases where there are dozens of related car models for just one automaker, but it is realistically impossible to change the exhaust gas program of more than 2 million diesel vehicles. Legally, as a foreign company owns the SCR-related patent right, there is a task that must precede the consultation procedure.

Although countermeasures are pouring in, there were signs that could have predicted such a situation early on. The General Administration of Customs (Customs) of China announced on the 11th of last month that it would make ‘pre-export inspection’ mandatory for 29 types of fertilizer items, including urea, which had been exported without separate inspection. This is an export restriction measure to preferentially supply the test paper to China. In fact, from October 15, four days later, the Chinese customs enforced the mandatory pre-export inspection system.

Prime Minister Kim Bu-gyeom said on November 8, “I regret it painfully” and said, “It is regrettable that if we had acted positively at the beginning, it would have been possible to prevent the situation from worsening.”

[왜 그런 건데?] China’s coal shortage ‘butterfly effect’

..The outbreak began in mid-March when China stepped up its urea exports due to a coal shortage. Urea is produced by extraction from coal or natural gas. China has been steadily reducing coal production as a result of its decarbonization policy. Moreover, last year’s trade dispute with Australia halted imports of Australian coal from China. As a result of the catastrophe, autumn floods hit major coal-producing areas in China last month, causing about 20 coal mines to temporarily stop production.

Urea stocks have also fallen to an all-time low as coal is scarce in China. Accordingly, the Chinese government newly established regulations on raw materials related to chemical fertilizers, including urea, and began to control exports from October 15. The Chinese government’s measures to curb exports of fertilizer items were initiated to protect the country’s industry.

As international prices for urea and chemical fertilizers, such as natural gas and coal, have soared, so have the prices of chemical fertilizers in China. In addition, as power shortages due to coal shortages intensified, production of urea and chemical fertilizers was disrupted. As the rise in fertilizer prices directly affects farmers, the Chinese government seems to have blocked the export of chemical fertilizers.

[뉴스쉽] Chinese traffic lights are off, why it is difficult to buy an iPhone ▼

According to KOTRA Beijing Trade Center, the utilization rate of urea production in China in the second week of October was 67.24% and the average daily output was 149,000 tons, down 5.6% and 4.1% from the same period last year, respectively. As of September, the unit price of urea imports exceeded US$480 per ton. In October last year, the unit price was around $270 per ton.

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In Korea, urea water is produced by Lotte Fine Chemical and Huchems, and most of the raw material urea is imported from China. China produces 30% of the world’s urea. If you look at the list of countries where China exports the most urea, India is the first and Korea is the second. Exports to Korea are 564,000 tons, accounting for 14% of China’s total urea exports. Korea imports 66.1% of its total urea from China. In particular, the dependence on Chinese imports for industrial elements reached more than 80% last year and 97.66% this year.

The urea water crisis is a global situation, but Korea, which has been completely dependent on China, has been hit hard.

[사실은] Korea, which went all-in with ‘Urea Su’ to China… other countries? ▼

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[어떻게 되는 거야?] Logistics → Food → Electricity Crisis → ?

Elements aren’t just for cars. Of the 560,000 tons of imported urea, 220,000 tons are used as urea fertilizer. If the price of fertilizer rises, the price of agricultural products also rises. Urea fertilizer is usually used before harvesting crops, so there is no big problem in this year’s rice farming alone, but considering that it is used for other crops, a price increase is inevitable.

..The impact on food supply due to rising urea prices is becoming a global phenomenon. According to the Food and Agriculture Organization of the United Nations (FAO) on the 9th, the Food Price Index recorded 133.2 points last month, the highest in 10 years since July 2011. This is a 35.8% increase from the average of last year. FAO’s Food Price Index is an index that shows the monthly change in the world’s most traded foodstuffs.

In particular, the rise in grain prices is remarkable. In addition to reasons such as extreme weather and labor shortages, the recent increase in fertilizer prices has been cited as the cause. “The recent surge in fertilizer prices puts a cost burden on many farmers in Asia,” Bloomberg said. “One ton of fertilizer is more expensive than one ton of rice,” said the president of Thailand Agricultural Association, a major exporter of rice.

The urea water crisis is likely to spread to thermal power plants. Since thermal power plants generate electricity by burning fossil fuels such as coal or natural gas, nitrogen oxides are produced a lot. So, urea water or ammonia water is used to reduce nitrogen oxide emissions. Exceeding the nitrogen oxide emission standards will result in administrative sanctions. This means that urea water is absolutely necessary for the operation of a power plant. According to data obtained by Rep. Han Moo-kyung from five public power generation companies, it was confirmed that 3 out of 5 power generation companies had only about one month of urea inventory left. As of the 4th, East-West Power has a total of 335 tons of urea water, South-East Power has 258 tons, and Korea Midland Power has 567 tons of urea water. Based on last year’s usage, it is expected that the number of urea will run out in 22 to 35 days. Failure to meet emission standards could lead to shutdowns of some power plants during the winter, when electricity for heating is required. Among domestic thermal power plants, urea water is used for about 10% of the total.

[왜 안 되는 거야?] Korea, which had the ‘world’s largest urea factory’… Now?

Without it, why do we depend only on imports for resources that are so essential that the industry stumbles? Urea is extracted from coal or natural gas, and once the material is available, it is a catalyst that can be supplied within a day. The technology to make it is not difficult, but the problem is ‘price competitiveness’.

In the past, there was a factory that made urea in Korea. Although the world’s largest urea factory was already built 50 years ago, China’s low-price offensive made it less competitive, so producers stopped production one after another in about 2011. Currently, there are no companies that produce urea. Virtually all of them are imported from China and mixed with water to make urea water.

What about the situation in other countries? Japan has an industrial structure similar to that of Korea, but there is no shortage of urea. China, which accounted for 97% of the world’s rare earth supply (92% of Japan’s total imports) until 2009, took retaliatory measures to halt exports in 2010 when the Sino-Japanese territorial dispute over the Senkaku Islands (Chinese name: Diaoyu Islands) began. Afterwards, Japan recognized the ‘strategic importance’ of rare earths and tried to diversify its import sources into Asia and Africa. Based on this experience, he also developed self-sufficiency in major materials.

According to NNN, a private broadcasting company in Japan, Japan has built a system to produce ammonia, the main raw material of urea, on its own, and based on this production capacity, it produced 743,231 tons, or 77%, of 962,814 tons of ammonia last year. Although it imported 116 million dollars of urea last year, the import market is widely distributed in Southeast Asia, China and the Middle East.

[그래서 우리는?] The urgent need to diversify import sources

The ‘urea water incident’ that caused a stir in Korea, when China announced that it would proceed with the export procedure for 18,700 tons of urea, which it had already signed a contract with, entered a calming phase for a while. However, with the current supply chain system that is dependent on a specific country, there are voices that are concerned about a second urea crisis. According to the Korea International Trade Association, as of January to September of this year, 31.3% (3941 items) of 12,586 imported goods were over 80% dependent on a specific country.

Korea has already realized that Korea is highly dependent on certain countries for key imported items through the 2019 Korea-Japan trade dispute. It is pointed out that in order to prevent a recurrence of such a situation, it is necessary to diversify import sources and have domestic production facilities. It is predicted that the global supply chain will be reorganized due to the corona pandemic. It is pointed out that countermeasures should be prepared accordingly.

(Composition: Senior Correspondent Lee Hyun-sik, Reporter Jang Seon-i / Designer: Myung Ha-eun, Park Jeong-ha)

Reference-news.sbs.co.kr

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