Consolidation likely among gold refineries

Lack of scrap collection coupled with increase in import duty on dore hit domestic refineries hard

Consolidation looms in India’s gold refinery business due to non-availability of scrap gold for melting and processing of dore (unrefined gold) being uncompetitive.
 

Consequently, average operating capacity of refineries has declined to 25 per cent.

India is dependent on gold imports, either in refined or dore form, to meet its needs. Imports account for around 85 per cent of total supply and the refining sector plays an important role in putting these in a form suitable for the gold industry. The refining industry also recycles old jewellery, which accounts for around 15 per cent of supply.

The refining industry has gone through much change since 2010. Encouraged by a favourable import duty framework, a little over two dozen new refineries were set up in the past three years. Total capacity is now estimated at 1,450 tonnes.

After 65 tonnes of gold recovery through recycling between January and September, according to data from the World Gold Council (WGC), consumers in India opted to postpone further recycling towards the end of August. This means recovery in the fourth quarter of calendar 2016 might remain lacklustre. The WGC data showed recovery through recycling stood at 80 tonnes in 2015, lowest in six years.

“There are now 30 organised refineries, with a combined capacity in excess of 1,450 tonnes. Looking ahead, the industry is likely to enter a period of consolidation,” said Somasundaram P R, managing director of the WGC’s India arm.

To boost supply from domestic sources, the government introduced a Gold Monetisation Scheme (GMS), with an attractive interest.  The scheme is yet to show much success.

“Both GMS and the Gold Sovereign Bond schemes were great initiatives. But, the government should put less restrictions on GMS. If policies are simplified, consumers will have confidence in depositing 200–500 grammes and would not be asked any questions for doing so. Through GMS, a significant quantity of gold can be collected by the banks, which would reduce India’s reliance on imports,” said Prithviraj Kothari, managing director, RiddiSiddhi Bullions.