FOCUS - Indian gold imports seen surging in July despite huge inventories

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Ian Walkerian.walker@fastmarkets.comPhysicals Reporter+44 (0) 20 7337 2145

London 10/08/2015 - Indian gold importers have shown no sign of slowing down activities, with a surge in volumes expected in July despite suggestions from a number of sources that there are already large inventories across the country.

There is growing speculation that around 80 tonnes of gold may have been imported into India in July - though this will not be confirmed until the first official estimates are published mid-month.

If confirmed, the number would be nearly double initial market expectations of 40-50 tonnes.  In July 2014, official estimates valued gold imports at $1.8 billion - which at the time equated to around 43 tonnes.

Inventories are already high after the removal of the 80:20 legislation in November prompted a rise in imports. Around 55 tonnes were imported in June, 62 tonnes in May, 81 tonnes in April and 131 tonnes in March, with extremely high import figures also recorded towards the end of 2014.

The mid-year months are traditionally slower periods of demand for Indian consumers, with much of the market focussed on the key monsoon season which begins in June and ends in September.

The domestic agricultural sector accounts for as much as 60 percent of gold demand - farmers use gold as a primary store of wealth because they have limited access to the formal banking system. Any disruption to the annual monsoon season, which can provide as much as 80 percent of annual rainfall - can have a profound effect on domestic consumption numbers.

Typically, imports of gold tend to drop in line with demand during this period, but this year Indian importers have shown little sign of slowing down activity.

As a result, local observers believe that bullion dealers and jewellers across the country could collectively be holding as much as 100 tonnes of gold. The vast majority of this will be held by the dealers, with smaller portions held by fabricators and jewellers.

"It seems to differ depending on who you talk to, but one thing is for sure there is a lot of material around," a source said.

A member of one of India's top banks for the import of precious metals disagreed and claimed that nearly all of the metal imported so far this year has been consumed.

Year on year, June's imports were far lower than those of 2014, he pointed out, adding that consumption figures were therefore as expected with all of his clients reporting good demand.

However, according to official data, over 400 tonnes of gold have arrived in India between the start of the year and the end of June, up from around 300 tonnes over the same period in 2014.

Still, much of this gold coming into the country is likely to be in the form of semi-pure doré bars, which have much lower gold content and are subject to lower import duties than refined gold.

Sources suggest that this is due to more and more refineries looking to take advantage of the import tax differential - up to $20-25 per ounce at current prices - and becoming "aggressive" in their pursuit of the semi-pure bars.

Moreover, dealers often stock up large amounts of metal in preparation for the key Hindu festival season, which starts in September and marks an incredibly auspicious time for Indian consumers to buy gold. 

On the demand-side, the local premium for gold is steadily improving and consumption will begin to ramp up in the coming weeks ahead of the conclusion of the annual monsoon season and the beginning of the Hindu festival season.

As of Friday, the premium in Ahmedabad/Mumbai has held at around $2 above the London spot price on .995 gold, though some dealers are now getting deals at around $3 for immediately available material.

Until the end of July, the market had been trading in discounts of nearer $8 but a drop in the international spot price and better-than expected rainfall across much of the country has prompted a return to a premium structure.

(Editing by Perrine Faye)
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