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South Korea to up aluminum, copper buys

SEOUL (Reuters) - South Korea, Asia’s third-largest base metal buyer, plans to boost its strategic aluminum and copper reserves by 46 percent and 23 percent respectively this year in anticipation of higher prices and demand when the economy recovers.

But it plans to reduce zinc and nickel purchases by around 30 percent due to ample inventory, the head of state-run Public Procurement Service (PPS) said at the Reuters Global Mining and Steel Summit in Seoul.

“This year offers the best opportunity to achieve value for money in stockpiling. We plan to actively purchase in the first half as metal prices are likely to gradually recover later this year,” Kwon Tae-kyun, administrator of the agency, told Reuters.

“The plan will allow us to boost our strategic reserves sharply even with reduced spending and prepare for increased demand in 2010 when the economy is expected to recover.”

After hitting record highs early last year, fueled by China’s strong demand, most metals have lost more than half of their value, with copper prices down around 60 percent, as a deepening global economic slowdown reduced commodities demand.

Cheap prices have since invited strong interest from some Asian countries and China is again leading the recovery by sharply boosting its stockpiles of copper, aluminum and zinc.

“We have also raised our total reserve target to 205,500 tonnes from the previous plan of 160,000 tonnes. That’s a 39 percent increase from 2008 and our primary focus will be on aluminum, which domestic companies depend heavily on us, and rare metals,” Kwon said.

The agency plans to boost aluminum purchases by 46 percent to 114,000 tonnes and copper purchases by 23 percent to 55,000 tonnes. Purchase of rare metals such as silicon, manganese and lithium will jump seven-folds to 17,500 tonnes.

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Other rare metals such as magnesium, strontium and bismuth will also be added to its reserve plan later this year.

Although its purchase amount is dwarfed by China’s massive spending plan, South Korea is one of the few countries releasing detailed stockpiling plan and most countries prefer to keep the breakdown secrete for fear of driving market prices higher.


The agency, tasked with building reserve stockpiles of base metals for local small- and medium-sized firms, plans to steadily increase reserves to 39 days’ worth of supply by end-2009 and 60 days by 2012, from 27 days now by using cheap metal prices.

But a tumbling won has made its purchase plan complicated and the agency is now seeking to delay payments and metal shipments to later this year and buy LME futures contracts in anticipation of later price recovery.

“We’ll delay payment period to the third quarter or beyond when the won is expected to stabilize and use long futures to lock in future gains in metal prices,” Kwon said.

The South Korean won, the worst performer among major Asian currencies, dropped more than 20 percent this year to a 11-year low due to massive foreign sales of domestic stocks and concerns of reduced dollar repatriation from struggling exporters.

Kwon also said the agency plans to lend state warehouses to large firms for free or at cheap rates to increase base metal reserves in Asia’s fourth-largest economy, which relies 97 percent on imports of raw materials to power its export-driven economy.

“Dometic firms’ reliance on us will increase as many are struggling under stretched credit market conditions and we plan to offer metals at prices 3 to 5 percent lower than market prices and lease term will also be eased with lowered interest rates.”

The agency currently provides 8 percent of domestic base metal supply in South Korea, which is home to the world’s biggest shipbuilder, No.1 memory chipmaker and No.4 steelmaker.

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Reporting by Miyoung Kim