Urea crisis feared to pour cold water on COVID exit plan

First Vice Finance Minister Lee Eog-weon presides over a joint meeting with 12 ministries and affiliated agencies at the Government Complex in Seoul, Wednesday, to discuss updates on the government's countermeasures to the shortage of diesel exhaust fluid. Yonhap

Gov't may be unable to reach annual growth target of 4%

By Yi Whan-woo

The shortage of diesel exhaust fluid (DEF), also called “urea water,” is raising concern as the crisis could spread to a wide spectrum of businesses and thereby disrupt the government's recently-launched “Living with COVID-19” policy to restore industrial output, spending and corporate investment.

Such a disruption is feared to put the brakes on economic growth for the fourth quarter, just as the fourth wave of the COVID-19 pandemic slowed growth in the third quarter, and accordingly, confound the government's aim of achieving annual growth of 4 percent.

In response, the government has scrambled to secure additional sources of DEF, mobilizing the finance, foreign affairs and other relevant ministries to contact overseas exporters of the product or urea, its main component, which will otherwise run out of stock in a month or two.

The Ministry of Foreign Affairs said Wednesday that China has confirmed it will comply with existing contracts with companies here and export 18,700 tons of urea.

Also the same day, the Ministry of Finance and Economy held a joint meeting involving 12 ministries and affiliated agencies, noting that imports from Australia and Vietnam together with those from China will allow Korea to have enough supplies for two-and-a-half months.

Cheong Wa Dae has been overseeing the issue, under a special taskforce led by An Il-hwan, the senior presidential secretary for economic affairs.

“A major risk associated with the urea water crisis is uncertainty and that makes it not easy to predict what will happen to businesses that are seemingly not directly related to it,” said Jung Kyu-chul, a fellow at the Korea Development Institute (KDI).

The chaos prompted by crunch in the supply of DEF and urea beginning last month was foreseeable in the trucking industry and shipping services, considering it is a key component for diesel-powered vehicles, many of them cargo trucks and buses.

The possible standstill in freight operations and shipping will seriously impact supply chains and the delivery of industrial products to manufacturers ― and daily goods to consumers ― could be delayed indefinitely.

Furthermore, steel mills, thermal power plants and cement manufacturers are other “industries” that directly require urea water for operation; and any disruption of these could hamper corporate investment.

“These are just a handful of examples that illustrate how the unpredictable nature of the urea water crisis can threat our economy,” Jung said.

He noted that the shortage could even affect exports. This is seen as the worst possible scenario as the nation has seen robust exports that had increased for 12 consecutive months as of October despite the pandemic. In particular, exports recorded an all-time monthly high value of $55.8 billion in September.

Lee Seung-suk, a research fellow at the Korea Economic Research Institute, expressed concerns over this and consumer spending.

He pointed out that the country has resumed distributing coupons for travel, theatergoing and other leisure activities beginning this month in a shift to the government's “Living with COVID-19” phase.

“With overseas travel advisories still remaining, residents are likely to head to rural areas for vacations until the end of the year. And not being able to use diesel-powered buses would certainly have a negative impact on this and thus spending.”

Citing a lack of statistics, Lee said it was too early to say to what extent growth in the fourth quarter will be affected.

However, he noted the country's economy grew at snail's pace of 0.3 percent year-on-year in the July to September period and this could be the case in the October-December period if the DEF shortage is not resolved.

The third quarter growth contrasted to the second quarter which reached 0.8 percent.

“It is self-explanatory that the economy losing steam in the fourth quarter will subsequently result in the government's failure to hit its target of annual growth of 4 percent,” Lee said.