Gold supply by domestic refineries dips by a third
Deep price discounts render local refining unviable
The share of gold provided by local refineries has fallen by one-third in the first nine months of 2019. The gold in the bullion market was available at a discount for some months, making refining unviable.
In the first nine months, refiners supplied 142.6 tonnes of gold compared to
213.8 tonnes last year, down by 33 per cent. The overall share of refined gold remained at 48 per cent of
299.7 tonnes during nine months of this year. It was
55 per cent of 390.8 tonnes last year during the same period, finds precious metals agency GFMS. This was contrary to the trend in the past few years when local refineries were seen increasingly importing dore and supplying refined gold to the market.
Bulk of the damage took place in the September quarter as the deep price discounts made the refining business completely unviable. When gold was available at a 3 per cent discount in the retail market there was no room left for banks or refiners to bring gold in at the international rate. The market discount widened to $60 per ounce at times during August and September, while the average discount remained in the range of $40 for the quarter.
The market could provide gold at a discount due to the increase in import duties and the rising prices. “Bullion dealers had imported gold at a lower tariff rate with a lower import duty applied until June. When, in the first week of July, the government increased the import duty from 10 per cent to 12.5 per cent, the bullion dealers immediately gained 2.5 per cent on the stock they had held. When the price started to surge in the international market, it gave them additional incentive to sell the metal at lower than the existing gold rate,” said Debajit Saha, Senior Analyst, Precious Metals Demand, South Asia and UAE, GFMS.
Further, the demand for gold at the consumer-end remained stagnant when the gold prices rose. Usually the premium or discount at which gold is available in the bullion market is also an indicator of the demand for the metal.
Moreover, when the prices rose, scrap supply also went up and this increased the availability of the metal in the market. As per the estimates of GFMS, scrap supply increased 19 per cent in Q3, on a year on year basis, to an estimated 25 tonnes.
Supply of gold by banks also remained stagnant during the first nine months due to increased availability of gold at discount and contracted demand.
Indian refiners have resumed buying Malaysian palm oil after a gap of nearly a month and contracted around 70,000 tonnes of shipments in December as Kuala Lumpur has been offering a $5 per tonne discount over supplies from rival Indonesia, five traders told Reuters on Thursday.
The resumption in purchases by India, the biggest buyer of Malaysian palm oil this year, could support Malaysian palm oil prices, which are near their highest in two years.
Palm oil is crucial for Malaysian economy as it accounted for 2.8 per cent of Malaysia’s gross domestic product last year and 4.5 per cent of total exports.
Indian refiners stopped purchases from Malaysia last month, fearing New Delhi could raise import taxes or enforce other measures to curb imports after Kuala Lumpur criticised New Delhi for its actions in Kashmir.
Malaysian palm oil is available at a $5 discount amid congestion at Indonesian ports, said a Mumbai-based dealer with a global trading firm.
“This is giving a few buyers a reason to start buying Malaysian oil in small quantities to run their refineries.”
Malaysian crude palm oil (CPO) for December shipment on the Indian west coast was available at $603 on a cost and freight basis (C&F) on Thursday, while Indonesian CPO was quoted at $608, dealers said.
Indonesia is the world’s biggest producer of palm oil, followed by Malaysia.
In October, India’s top vegetable oil trade body told members to stop buying palm oil from Malaysia in a call aimed at helping New Delhi punish the country for criticising India over its policy towards Kashmir.
— Reuters