Jan. 29 (Bloomberg) -- South Korea, Asia's third-biggest base-metals buyer, plans to increase purchases of aluminum and zinc to prepare for a pick-up in demand driven by economic recovery, the head of the Public Procurement Service said.
The state-run body that manages strategic commodities plans to buy 122,000 metric tons of aluminum in 2010, 1.8 percent more than last year, and 10,000 tons of zinc, up 16 percent, Administrator Kwon Tae Kyun said today. Copper purchases may drop 53 percent after a gain in reserves last year, he said.
South Korea, which imports 97 percent of its raw-material needs, has been building up stockpiles and took advantage of lower prices caused by the global recession to augment reserves. An index of the metals traded on the London Metal Exchange almost doubled last year, buoyed by stimulus spending.
"Last year was a very good opportunity for stockpiling and this year may continue to be good timing because the economy has not fully recovered yet," Kwon said in an interview. "We will continue to boost reserves to prepare for a recovery."
The agency plans to increase holdings of six metals -- aluminum, copper, zinc, lead, tin and nickel -- to 49 days of the nation's import needs this year from 40 days, he said. Last year, reserves of the six rose by 10 days.
"We are expecting the world's economic growth to be faster than last year," Kwon said. "Prices of raw materials will grow further," with copper "higher than last year," he said. Average base-metal prices may gain 15 percent in 2010, Kwon said in a Jan. 21 briefing.
The World Bank last week raised its forecast for global growth this year, while warning that the recovery may lose momentum in the second half as stimulus programs end. Growth may be 2.7 percent in 2010, compared with an estimate last June for an expansion of 2 percent, it said.
Copper futures in London more than doubled last year, outperforming the 45 percent gain in aluminum. Copper traded today at $7,090 a ton, while aluminum futures were at $2,130.
South Korea's total purchases of the six industrial metals may fall to 160,000 tons, costing about 540 billion won ($466 million) in 2010, from last year's 184,000 tons, Kwon said. Copper buying may drop to 22,116 tons, lead buying may plunge 70 percent, while nickel purchases may rise 45 percent to 1,462 tons, he said.
The agency stockpiles mostly non-ferrous metals, buying when global prices drop and releasing some supply when the market gains. It meets about 8 percent of the country's metals demand, often setting benchmark local prices.
The service, which has 2,000 to 3,000 small- and medium- sized companies as customers, has said it will expand overall reserves, including both base and rare metals, to 60 days of consumption by 2012.
To help meet the target, the agency is pursuing joint stockpiling with private-sector companies, allowing them to use its storage facilities to build up stockpiles and enabling the agency to buy private reserves in an emergency.
"It's worth consideration from the point of view of mid- and long-term investors because returns are good and there's no stability and liquidity problem since it's run by the government," he said. Yields from the stockpiling business over the past several years are estimated at 9 percent, he said.
The agency plans to add 33,060 tons of rare metals including lithium, manganese and silicon, this year, up 40 percent from a year ago, Kwon said. The purchase plan will help double its rare-metal reserves to 66,000 tons this year.