I dont think it has to do with them peeing and the toxins being released. cedar is very aromatic wood. Its aromatic to repel insects. This is hazardous when in close quarters with a chinchilla because it can cause respiratory problems, as well as liver damage. This is caused by the high phenols in the wood.
I dont even know why they still produce cedar shavings for the small animal industry because many small animals are susceptible to these complications, and once an owner does find out of the potential dangers, many dont buy it. Just stay away from it, there are so many other better alternatives out there.