Scrap shortage from domestic sources has resulted in a decline in the operating capacity of gold refineries by almost 50 per cent against the annual average.
Harmesh Arora, managing director of Mumbai-based NIBR Bullion (National Refinery) said gold refineries had built huge capacity over the years which was currently unutilised due to dearth of used gold. “Hence, the overall capacity utilisation from the annual average of 30-35 per cent has come down to below 20 per cent.”
Scrap gold recovery has currently declined by at least 10-15 per cent due to price stability. February-March is considered to be a lean season for south India where less activity —fresh buying and selling — is witnessed. “Therefore, our processing capacity has declined by 45-50 per cent to around 20 kg a day,” said James Jose, managing director, Chemannur Gold Refinery and secretary of the Chennai-based Association of Gold Refineries and Mint.
Jose said as jewellery retailers are ready with fresh stock two months before the wedding season in May, gold procurement for India’s largest off-festival season is already over.
Consequently, gold availability from captive refineries in the country may decline by 75 per cent to settle between 16-18 tonnes during the first quarter of the current calendar year, as compared to 64 tonnes in the corresponding quarter of last year.
First quarter of 2009 was exceptionally good for gold recovery which shot sharply to 64 tonnes as investors of other asset classes rushed to cover losses in equity market in the post global economic slowdown led by the collapse of Lehman Brothers in September 2008. Gold scrap selling in India in the third and fourth quarters of 2008 was recorded at 16 tonnes and 20 tonnes respectively.
Gold availability from domestic scrap recycling declined to 17 tonnes in the fourth quarter ending December 2009, from 18 tonnes, 23 tonnes and a staggering 64 tonnes in the third, second and first quarters of the same year, respectively. In the fourth quarter of 2008, gold availability from domestic refining was 20 tonnes, according to the World Gold Council data.
Generally, gold users in India offload a major part of their holdings when the price soars and then again when it comes down — giving a simmering hope for an upward movement, said Bhargav Vaidya of B N Vaidya & Associates, a Mumbai-based bullion trader.
Analysts believe retail consumers in India cashed in on their extra holdings of the yellow metal when the price surpassed Rs 18,000 per 10g in the first quarter. Fearing the metal may crash due to lack of fundamental support, they continued selling additional stocks in the second and third quarters as well.
In many markets, however, the supply of recycled gold has been relatively subdued. Price expectations appear to have adjusted higher and gold holders are anticipating a further price surge. Therefore they are reluctant to sell their existing holdings at the average price levels seen during the fourth quarter of 2009.
“But, since, prices have stabilised, consumers are awaiting a fresh upward move in prices for a rebound in scrap sales and thereby, a higher capacity utilisation of gold refineries,” said Ketan Shroff of Pushpak Bullions, a city-based jewellery trader.
