China’s export ban of urea water to South Korea has highlighted the country’s heavy reliance on Chinese supply chains.
South Korean media pointed out if China restricts the export of certain items due to unstable raw material supply, it could affect the secondary battery and solar energy materials and components industries in South Korea. Some see the export ban on urea water as a good opportunity for South Korea to re-examine its reliance on China-based supply chains.
Based on the Harmonized Tariff Schedule of Korea (HSK), of the items of imports where accumulated value surpassed US$100 million each in the first 10 months of 2021, over 150 items saw more than 50% of their imports from China, most of which went to secondary batteries and solar energy.
A high percentage of many secondary battery materials in South Korea are imported from China, including 99% of manganese cathode material, 83% of lithium, 62% of cobalt, 93% of aluminum, 87% of natural graphite anode material, and 67% of artificial graphite. In the solar energy industry, 98% of ingots are imported from China, as well as 90% of silicon wafers, 88% of solar cells, and 98% of solar modules.
In addition to the price increase of nickel and aluminum coming from China, issues between China and Australia have caused supply and demand problems for coal. The ongoing competition between the US and China has also brought up questions on how to ease dependence on China-based imports and avoid trade wars.
Earlier in October 2021, China announced the reduction of urea exports, which disrupted production of industrial products and public transportation in South Korea. Urea water is commonly referred to as diesel exhaust fluid (DEF), automotive urea or automotive eco-friendly urea. Its main function is to break down the harmful nitrogen oxides (NOx) produced by diesel vehicles into nitrogen and water.
South Korea has also been dealing with the Japan-South Korea trade dispute since July 2019. Due to several factors, Japan reduced exports of raw materials such as fluorine polyimide used in OLED panels, photoresist used in semiconductor manufacturing, and hydrogen fluoride.