GATA: THE GATA DISPATCH: Gold scrap scarcity hobbles Indian refineries.

Gold scrap scarcity hobbles Indian refineries

Gold Refineries' Operating Capacity Declines
By Dilip Kumar Jha
Business Standard, New Delhi
Sunday, February 27, 2011
MUMBAI -- The operating capacity of domestic gold refineries reached alarmingly low levels due to scarcity of scrap. Currently domestic gold refineries are operating between 25-30 per cent of their installed capacity as against 35-40 per cent around the same time last year.
"Used gold sales have declined steadily in the last one year as consumers are holding jewellery in anticipation of higher prices. Total recycled gold supply plunged to 89 tonnes in 2010 as compared to 122 tonnes in the previous year," said Ajay Mitra of the India and Middle East office of the World Gold Council.
Despite availability of other raw materials like "gold powder" and "dore bar" (raw gold), refineries can rely only on used gold from domestic sources for melting into coins and bars for further processing.

Gold powder cannot be imported due to security and storage reasons. Import of "dore bar" also faces high customs duty, which is unviable. Hence, domestic refineries generally procure used gold from local jewellers for running their operations.
The situation, however, is unlikely to change for domestic refineries at least for one more month. With the beginning of festival season in the south, especially in Kerala and Chennai, used gold sales increase. The April-May holiday season in the south coincides with Akshaya Tritiya, the most religious festival for buying gold. Also, during this period, most of non-resident Indians bring huge amounts of gold jewellery from abroad for sale in local markets, which increases availability tremendously.
"Therefore, we hope that gold scrap availability will rebound in early April which would encourage higher capacity utilisation of refineries," said James Jose, managing director of Chemmanur Gold Refinery Ltd.
"Lower capacity utilisation will surely hit refineries' topline and bottomline. But we are used to it. This has been the scenario for the last couple of years. Hence, we have re-adjusted ourselves to cope with this situation," he added.
The next season for higher used gold availability in India is December-January, which ended this year on a disappointing note due to volatile prices.
In the last budget, basic customs duty on gold ore and concentrates was reduced from 2 per cent ad valorem to a specific duty of 140 rupees per 10 grams. The excise duty on refined gold made from such ore or concentrate was reduced from 8 per cent to a specific duty of 280 rupees per 10 grams. The import duty on raw gold was cut from over 400 rupees per 10 grams to 280 rupees per 10 grams. But an excise duty of 140 rupees per 10 grams was also levied. In effect, the overall duty was raised to 420 rupees per 10 grams, as against 300 rupees per 10 grams on pure gold.

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