Jewellers melt stock to manage inventory

Scrap supply likely to reach 140 tonne in CY20, as against 119 tonne last year

Jewellers have started melting ornaments to reduce inventory, with the steep economic slowdown hurting them hard. With this, they are also suffering a 100 per cent loss on the making cost of jewellery.

Usually, jewellers only melt old ornaments, which they receive in exchange when they sell new jewellery or from other sources.

Many jewellers had been holding inventory to give customers choices. But with jewellery sales being thin in the current economic environment and changing customer preferences, the cost of holding inventory has become "unbearable", they said.

Chirag Sheth, principle consultant for South Asia at Metal Focus, said: “Now two types of scrap have started coming for melting. Earlier, only old pieces of jewellery were melted, but now many jewellers have started melting new ornaments, too. This will increase scrap supply in 2020 to 140 tonne, from 119 tonne last year.”

The higher gold price is acting as a cushion for jewellers foregoing making charges of ornaments being melted. It’s not just big jewellery chains and stores that are opting to melt inventory, but small jewellers are also following suit.

Dipu Mehta, managing director, ORRA, a retail gold and diamond jewellery chain, said: “During the Covid-induced lockdown, we took a step back and reviewed our strategy and relooked at merchandising to suit the new demand reality.”

Many bigger chains were already working on reducing inventory in single stores, but they also used to arrange design not available in one store from another store. However, smaller and standalone stores, which have no such option, had kept higher inventory to retain customers by providing them several design choices. Such stores, too, have now started melting part of their inventory which they can’t afford.

Refineries, especially eight-nine big refineries, are active only because of scrap supply of old jewellery as well as new jewellery at a time when dore or unrefined gold is not available in enough quantity.