Increased availability from domestic recycling may dent India’s gold imports, despite the all-time high consumption forecast for this year.
Data compiled by the World Gold Council, the agency funded by global mining firms to promote sales, forecast India’s gold consumption would surpass the all-time record of 732 tonnes this year.
However, analysts estimate gold imports will remain at 500-550 tonnes. This means the gap will be bridged by recycling of scrap gold from domestic sources, which could double this year.
In the second quarter ended June, gold availability from domestic recycling rose nearly 43 per cent to 20 tonnes from 14 tonnes in the previous quarter.
Since consumers were apprehensive about economic uncertainty, which prompted higher old-gold sales, gold refineries recovered 23 tonnes from scrap in the second quarter of the previous year.
“If gold prices hit the psychological barrier of Rs 20,000 per 10g, consumers will come forward to sell used gold, which they have been waiting to do since long. Therefore, gold supply from domestic scrap sales will increase with each benchmark the metal sets. Ultimately, higher domestic availability will reduce import,” said Gnanasekar Thiagarajan, Director, Commtrendz Research.
According to an estimate, 20,000 tonnes of gold is held by Indian households, a majority of which is meant for long-term consumption.
“A trend has emerged in gold consumption, in India where a part of the large consumers’ portfolio is diverted for investment purposes within gold itself. Consumers have started preferring to buy gold coins and bars, instead of jewellery and ornaments as earlier,” said Prithviraj Kothari, director of one of the largest gold importers, Riddhi Siddhi Bullion.
Yet, recycling activity among Indian consumers was notable by its absence. With the exception of exchange activity (exchange of old jewellery for new, which is not captured in the demand and supply numbers), Indian consumers appeared to be targeting even higher prices as a trigger for selling back their holdings of old gold.
The high price environment encouraged an increase in recycling activity globally during the second quarter and supply from that sector reached 496 tonnes, 35 per cent up on year-earlier levels and the second highest quarterly number for recycled gold.
Recycling activity among western consumers has been on a gradually rising trend and the higher price level ensured that profit-taking in these markets was marginally higher than year-earlier levels.
| SCRAP OUTSHINES IMPORTS Indian supply estimates (in tonnes) | ||||||
| 2Q'09 | 3Q'09 | 4Q'09 | 1Q'10 | 2Q'10 | 2009 | |
| Net imports, available for domestic consumption | 159 | 176 | 204 | 198 | 150 | 559 |
| Domestic supply from recycle gold | 23 | 18 | 16 | 14 | 20 | 111 |
| Domestic supply from other sources | -2 | 3 | 3 | 3 | 3 | -25 |
| Equals total supply available for fabrication | 180 | 197 | 223 | 215 | 173 | 645 |
| Net imports of finished jewellery and inventory change | -10 | -12 | -11 | -10 | -5 | -32 |
| Supply available for end use consumption | 170 | 185 | 212 | 205 | 168 | 612 |
| Source : World Gold Council | ||||||
However, dissection reveals the bulk of this scrap supply came from non-western markets, notably the West Asian and East Asian markets. In these, the rise in supply of recycled gold during the second quarter was a reaction to higher gold prices, said a WGC report.
The dip in first-quarter recycling activity was an expectations-driven phenomenon; consumers expected the price to rise further and were waiting until these higher prices materialised before selling their holdings.
The record price levels reached during the second quarter served as the prompting for these consumers to take profits on their holdings of old gold, it added.
