Commodities | Jul 10 2008
By Greg Peel
Reuters’ Miyoung Kim reported overnight the South Korean government had announced plans to triple its base metal reserve stockpiles.
The announcement reflected concerns that Korea’s burgeoning manufacturing industry was struggling to secure raw materials in a period of tight supply and soaring prices. South Korea is home to the world’s biggest shipbuilder, its biggest memory chip maker, and the fourth biggest steel mill, among others.
The plan is to raise stockpiles from a current 16 days to 90 days worth of twelve different key commodities, including copper, aluminium and nickel. The economy of South Korea – the fourth biggest in Asia – depends almost completely, Kim notes, on imports of copper, zinc, nickel, lead and iron ore.
The move is intended to stabilise demand/supply conditions within Korean industry, the government suggested. Korea is set to pay about 30% more for commodities on average this year from last due to soaring commodity prices.
It seems rather strange that the Korean government should announce this to the world. The Chinese always try to play a game of stealth, hoping to sneak around the Westerners and not drive prices higher. It doesn’t always work, given the Chinese are still a bit inexperienced in world commodity exchange trading, but nevertheless global analysts are always left to make rough guesses on the extent of Chinese stockpiles.
But announce it they did, and it’s probably no great surprise that most base metals had a bit of a run last night in London. If the Koreans are buying then of course the price should rise. They’re only building stockpiles however, so one has to assume the stockpiles really will be used up in the estimated time frame or it might be that Korean metal will come back to market somewhere down the track. Like, for example, if there were global economic slowdown.