Gold dore import dips 35% in Apr-June quarter

Refining becomes unviable due to 2-4% price discount in India versus import; operating capacity falls below 25%

Import of gold doré (unrefined gold) into India declined 35 per cent in the April-June 2016 quarter due to massive loss incurred by refineries on its conversion. Data compiled by the World Gold Council (WGC) showed India’s gold dore import was at 36.7 tonnes in the second quarter of 2016 (calendar year) compared to 56.7 tonnes in the year-ago period.

Doré import started declining since gold price turned into a discount compared to import cost in January this year. Started with $2 an oz, the discount in gold price has jumped to nearly four per cent of the prevailing market price. In the past couple of months, it moved between two and four per cent.

“Gold is available at a disparity in India compared to international price. Therefore, the refining margins are not adequate to support dore import for refining locally. This is the major reason for a sharp decline in dore import for processing in Indian refineries,” said Rajesh Khosla, managing director, MMTC Pamp India.

In the Ahmedabad spot market, gold was selling at a discount of $32 - 35 an oz on Friday. In other places as well, gold was retailing at similar discounts.

  According to industry sources, refining margins are currently at 0.65 per cent for refineries in excise-paying zones and 1.25 per cent for units in excise-free zones. But, when gold is selling at a four per cent discount, clearly no amount of refining margin would enable refinery to become viable.

“The only way forward is to reduce customs duty as high duty structure encourages smuggling. This problem will persist till a sharp cut in customs duty,” said Khosla.

According to trade sources, a large quantity of Indian gold demand is met through smuggling as envisaged in the latest WGC report.

“Faced with regulatory challenges and the increase in smuggling, India’s bullion sector continues to make moves to formalise its business, with the intention that this will also encourage the jewellery sector to do the same,” WGC said in its April-June quarterly report.

To curb rotation of black money from the system, the government introduced permanent account number (PAN) requirement for jewellery purchase above Rs 2 lakh apart from implementing excise duty on jewellery manufacturing.

“Setting up a refinery in India is very expensive against thin refining margins. So, refining business has become unviable. Apart from that, imported gold dore is very expensive. To make domestic refinery viable, the government needs to bring down gold import duty at two per cent from the existing 10 per cent,” said Satish Pratap, partner of Kochi-based SPS Gold Refinery.

By contrast, gold refineries using scrap jewellery as raw material has prospered in the quarter under review. WGC data showed that gold recovery through secondary sources jumped 70 per cent to 23.8 tonnes in the April-June 2016 quarter compared to 14 tonnes last year.

Consequently, refineries have reduced their operating capacity to alarmingly low level of below 25 per cent over the past few months.