Lower Base Metal Prices Spur Demand From Korea's PPS - Official

SINGAPORE, Sep 01, 2011 (Dow Jones) -- Recent metals purchasing activity by South Korea's Public Procurement Service, a state commodities stockpiling agency, was partly spurred by the lower prices on the London Metal Exchange, according to a strategist at the PPS.

The agency has been active in the market since the start of August, buying considerable quantity of metals including aluminum, nickel, zinc and tin through open tenders. Earlier this week, PPS said it was seeking 2,000 tons of copper in a tender that will close Sept. 9.

Hwang Young Soo, senior market strategist at the PPS, said part of the reason for the agency's recent activity is the aggressive selloff on the London Metal Exchange at the beginning of August that led to a sharp correction in base metals prices.

"It is somewhat related to [the] current price level," he said in an email response to questions. "We have to buy the metals for the purpose of [replenishing] our inventory...because we release the metal every day for small and medium size enterprises."

Three-month copper was trading at 9,201.75/ton at 0600 GMT Thursday, down 0.8% on the day and 6.9% down from the start of August. Lower prices across the LME have revived consumer buying interest across Asia, particularly in China, Korea, Taiwan and Indonesia.

PPS's buying plan for the rest of the year would "depend on the market situation", he said, declining to go into the specifics of which metal the agency could buy or the volumes required.

He also declined to comment on the current size of the agency's stockpile.

In February, PPS said it would raise the target for government reserve levels for some metals to better cope with growing concerns over global shortages. It raised copper and cobalt reserve targets to 80 days' worth of import demand and the required reserve of tin to 75 days' worth of import demand.

Before the revisions, the government had been targeting a reserve of 60 days' worth of import demand for various metals. While making the changes in February, the target reserve levels were also cut for some metals viewed as less vulnerable to shortages. The target for lead and aluminum reserves is cut to 40 days' worth of import demand.