published Jan 29, 2018, 7:04:37 PM, by Heesu Lee and Jaehyun Eom
(Bloomberg) —

South Korea’s buying intentions for metals could potentially tell us something about the price outlook, if the past 18 months are any guide.

The country got in front of the latest commodity rally by increasing foreign purchases for strategic reserves from the second half of 2016, said Park Chun-sup, administrator of the Public Procurement Service. Now, the agency plans to cut those stockpiles for base metals, reducing them to 53 days of demand this year and 50 days in 2019, down from 62.2 last year, he said in an interview. Inventories are set to decline to just over 200,000 metric tons of rare and industrial metals next year from 250,000 tons in 2017, he said.

“We went on a buying spree from the second half of 2016 and into 2017 to prepare for a resurgence in prices, so we now hold more than we initially anticipated,” Park said in Seoul on Friday. “The overall plan is to release more supplies to domestic firms this year, rather than expand our reserves,” he said, adding that while metals will continue in a bull market, he expects gains this year to be more muted than in 2017.

Industrial metals, as measured by the LMEX Index of six contracts, have jumped more than 25 percent since early June to the highest level in almost five years, fueled by a recovery in global growth and constrained supplies. More than half of the agency’s holdings are in aluminum, which was the best-performer on the London Metal Exchange in 2017. The lightweight metal has slipped this year, while zinc and nickel have climbed.

While the agency plans to reduce stockpiles of base metals, especially zinc which can be produced domestically, it’s looking to boost imports of lithium carbonate, a material the service is struggling to procure as it’s a sellers’ market, Park said. The agency will continue to be flexible when it comes to making purchases, taking into account price movements and demand, he said.

The agency buys through public tenders, and releases supplies to small and medium-sized companies, which have less scope to build their own stockpiles. Park sees metal prices continuing to be buoyed by global growth this year, making it hard for smaller firms to secure shipments. Asia’s fourth-largest economy is dependent on imports for most commodities.

–With assistance from Whanwoong Choi.To contact the reporters on this story: Heesu Lee in Seoul at hlee425@bloomberg.net ;Jaehyun Eom in Seoul at jeom2@bloomberg.net To contact the editors responsible for this story: Pratish Narayanan at pnarayanan9@bloomberg.net James Poole
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