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Supply chain

Korea scrambles to address DEF supply shortage

To import 270,000 liters of DEF from Australia, 200 tons of urea from Vietnam; in talks to buy 10,000 tons of urea

By Nov 08, 2021 (Gmt+09:00)

Cargo trucks and heavy equipment parked at a Seoul truck terminal amid a diesel exhaust fluid shortage in South Korea
Cargo trucks and heavy equipment parked at a Seoul truck terminal amid a diesel exhaust fluid shortage in South Korea

South Korea is stepping up efforts to secure diesel exhaust fluid (DEF) such as diversification of supply sources as the shortage of the liquid used to cut diesel engine pollution is feared to hurt growth in Asia’s fourth-largest economy.


President Moon Jae-in on Nov. 8 instructed his aides to mobilize all possible measures to stabilize the market.

The country is set to import 27,000 liters of DEF from Australia, 7,000 liters more than its earlier purchase plan, according to the finance ministry. On Nov. 7, the ministry said the government would import 20,000 liters, enough for 2,000 large cargo trucks to make a roundtrip between the capital Seoul and Busan, the country’s largest port city – one of the longest routes for local cargo transportation – on military aircraft this week.

The government also agreed to buy 200 tons of urea, a core material for DEF, from Vietnam next week. It is in talks with various countries including Russia, Indonesia, Saudi Arabia, Qatar, Malaysia and Mongolia to import about 10,000 tons of the raw material.

South Korea has decided to abolish tariffs on urea, which are currently 5-6.5%, to promote imports.

The defense ministry is considering the release of some military DEF reserves to the private sector, possibly lending up to 200,000 liters for the short term.

Local DEF inventories are rapidly dwindling, stoking fears that it could disrupt not only the supply chain but also major industries including the electronics, automobiles, refining and steel sectors, the core growth engines of the economy.

Urea prices are surging amid the shortage. Import prices for urea for industrial uses have topped $1,000 per ton since Oct. 15 when China blocked its overseas shipments by mandating export inspection of urea, according to a trade ministry report issued to a South Korean lawmaker. In October 2020, it was imported at $276.1 per ton.

TO EXPAND UREA SUPPLY SOURCES

South Korea plans to continue talks with China for faster customs processes of contracted urea as any measures are unlikely to significantly ease the shortage without supply from the mainland. China has yet to confirm if it is proceeding with customs clearance procedures and when it plans to relax an export ban on the material. China supplied 97% of South Korea’s urea needs for industrial use in the first nine months of the year.

The country is also slated to allow import declaration prior to arrival while reducing the inspection periods for vehicle DEF to three to five days from about the existing 20 days. The government will permit urea earmarked for industries such as steel and cement to be converted for use in the transportation sector once the converted material has been proven safe in vehicle safety tests.

The government has already banned all hoarding of DEF from Nov. 8. Hoarders face a fine of up to 100 million won ($84,452) or up to three years' imprisonment.

In addition to these short-term stabilization measures, the government is working on long-term strategies, such as steps to secure urea production facilities and build strategic stockpiles. The country ceased urea production in 2011.

It also plans to develop alternative catalysts to decompose nitrogen oxides without DEF and expand its facilities that can use ammonia water, a DEF substitute.

Write to Ji-Hoon Lee, Hye-Joung Moon, So-Hyeon Kim and Eu-Jin Jeong at lizi@hankyung.com

Jongwoo Cheon edited this article.
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