October gold import bill likely at $4 billion as wedding season kicks in

At an estimated 120 tonnes, industry experts say imports are not too high, as seen by premiums that are still around $22 per ounce

India’s gold import bill for the month of October is expected to continue the surge of the past two months when official data is released later this evening. In September India imported gold valued at $3.75 billion while the October bill is expected to come in at about $4 billion for almost 120 tonnes of the yellow metal. 

 

While some estimates go even higher, most industry experts are of the opinion that imports are not too high, as seen by the premiums for physical delivery that are still around $22 per ounce. High imports would have resulted in premiums crashing. The level of premiums of more than $20 is a recent phenomenon as demand has increased due to lower prices. In fact, some experts suggest that if premiums were to be reduced in the official market, the incentive to import will come down.

 

One industry official said that the 150-tonne number could be a result of double calculations. However they maintain that higher import officially has helped controlling unofficial imports. An intelligence agency official, speaking on condition of anonymity, said gold smuggling has reduced following the increase in official gold import limits.

 

Rajesh Mehta, chairman of Rajesh Exports who pegs estimated imports at 110 tonnes, said the “…high import is at a peak for now as marriage season is at its peak which will end in next two months. Jewellers have imported more gold to be ready with jewellery to meet demand.” He said 20 tonnes import was by Export Oriented Units (EOU) which are outside 80:20 purview, and 20% of rest is exported under 80:20. Only about 70 tonnes has remained for domestic consumption in October which he said is an acceptable number.

 

Official gold imports has to be considered on a net basis for current account consideration. To put this in perspective, September imports at $3.75 billion dollars include imports under 80:20 scheme and imports to EOUs. Calculated in tonnage terms at the average monthly price, the amount of imports is 106.3 tonnes. A veteran analyst estimated 9 tonnes was imported by EOU and balance is 97 ton was qualifying for 80:20. Out of that, minimum required 20% gets exported. This brings down the volume to 78 tonnes. These are normal volumes for a peak demand period, and that at a time when prices have declined more than 10% over a year ago. 

 

The average net official imports since first quarter of 2010 till second quarter of 2013 was 230 tonnes, based on data from World Gold Council. And since the 80:20 rule came into effect, average quarterly imports as of September 2014 have been at 105 tonnes. 

 

If imports are tightened, says industry experts, it could push up hawala premiums as demand will be met by smuggling and also result in higher premium for delivery through official route. Higher premiums will strain the growth of organised jewellery industry considerably.