Consumer demand for gold in India drops 25% in Q2

Jewellery demand down 23%, investment demand hits six-year low

Consumer demand in India for gold had dropped by 25 per cent during the calendar year’s second quarter (April-June) to 154.5 tonnes, from 204.9 tonnes a year before.

In dollar terms, says the World Gold Council (WGC), it dropped by 30 per cent to $5.9 billion during the quarter as compared to $8.5 bn a year before. The demand forecast is 900-1,000 tonnes in 2015 (calendar year) as compared to 841 tonnes in 2014.

The fall in China’s consumer demand during the quarter from a year before was only five per cent.

WGC, based in Britain, is composed of the wqorld's leading mining companies. Its report on trends for the quarter shows total demand at 915 tonnes globally, a fall of 12 per cent from the same period last year, due mainly to a decline in demand from consumers in India and China. However, demand in Europe and America grew, driven by a mixture of increasingly confident jewellery buyers and strong demand for bars and coins.

Looking ahead, there are encouraging signs in moving into what are traditionally the busiest quarters for gold buying in India and China.

China has remained much ahead of India in terms of gold demand. In the June quarter, it was 230 tonnes, compared to 154.5 tonnes. Till 2012, China was trailing India.

According to the report, extreme weather patterns overshadowed rural demand in the quarter, which had a direct impact on incomes among the rural population (more than half of India’s demand). “Coupled with rising rural inflation and the government’s decision to trim the prices at which it purchases rice and wheat from farmers, incomes in these areas have been doubly squeezed,” it said.

Somasundram P R, the managing director-India for WGC, said rural consumers were cautious in spending and hence the drop in demand.

On the outlook, he said the second half of the year in India would see growth of 25 per cent. Rural optimism will come back. He said the Council had not factored in a good monsoon but expected an uptake in the general economic trend. Compared to last year’s import of 891.5 tonnes, it could be 900-1,000 tonnes this year.

On smuggling he said, it was 175 tonnes last year and would be lower this year, substantially due to better enforcement, demand not driving towards a huge premium and official supplies (enough importers) also available. Industry officials, however believe, the year is expected to end with 125 tonnes of ‘unofficial imports’, from 200 tonnes in 2013.

Jewellery demand at some high-end, branded chain stores in larger cities saw modest growth. This contrasted with sizable losses suffered by small, independent jewellers in Tier-II and Tier-III cities.

During April–June, jewellery retailer Titan declared it had been one of the toughest quarters for the company, as sentiment was so weak. Jewellery sales volumes dropped by 10 per cent year-on-year. Their Goldplus range, designed for ‘semi-urban and rural’ customers, was one of the poorest performing, with sales value down 24 per cent over a year.

While wedding-related demand was affected, “an interesting trend is the rapid growth of doré (a semi-pure alloy of gold and silver, usually created at the mine site and then transported to a refinery for further purification) as a proportion of imports; this element grew five-fold, from 9.2 tonnes in Q2 of 2014 to 55.8 tonnes. This might have been driven by refiners actively seeking out supplies of doré, to make the most of the difference between duties on these and bullion imports. In any case, the groundswell of these imports have contributed to the inventory overhang”, said WGC.

Indian jewellery demand over these six months declined a modest seven tonnes from a year before. With Diwali heralding the onset of the wedding season in mid-November, prospects for the year's second half are supportive, particularly with the local price having dropped substantially in recent weeks. Investment demand in India is, however, at a six-year low. Despite reasonable levels of interest around Akshaya Tritiya in April, this demand contracted for a third quarter in a row, declining 30 per cent to 36.5 tonnes.
 

“Uncertain price expectations were a factor, as was the stock market, which has continued to capture the attention of investors with its continued strong performance. The weak rural economy played a further role. Those rural investors most affected by the Q1 rains were more inclined to sell gold to supplement declining incomes than make fresh purchases,” according to the report.

The lack of demand was such that, unusually, India exported a small amount of bullion during the quarter. The local market price discount provided a profit-making opportunity – and around 10-15 tonne of bullion was exported to capitalise on that, it added.