Gold refineries reduce capacity use by 40%

Hit by poor availability of scrap, expensive raw gold imports.

Gold refineries in the country have further reduced their operating capacity by over 40 per cent due to poor supply of scrap as investors hold on to their jewellery in anticipation of higher prices in the near future.

The refineries, which were operating at 35 per cent of their installed capacity in the first half of the current calendar year, are now running at 20 per cent. And, raw gold imports are not economically viable because of the high Customs duty.

Availability of scrap has become a major worrry as individuals with small gold holdings are waiting for prices to escalate further. Many had sold in July when gold prices had hit a high of Rs 15,000 per 10 gm.

India produces about 10 tonnes gold. Out of this, about eight tonnes is extracted as a by-product of copper by Hindalco Industries. Domestic refineries, including Hutti Gold, the only gold miner in the country, contribute about two tonnes.

“According to an estimate, Indian mines produce only one gram of raw gold per tonne of mud, as compared with two-three gram overseas. Therefore, gold mining in India is a loss-making proposition,” said James Jose, MD of Chennai-based Chemmanur Gold Refinery.

Harmesh Arora, a senior executive of Mumbai-based NIBR Bullion and vice-president of the Bombay Bullion Association (BBA), had recently said, “Domestic refineries are currently operating at 20-30 per cent capacity due to lack of raw materials. Since these refineries survive only on re-melting scrap gold, their capacity utilisation is minimal.”

Since Customs duty make “dore” (unrefined gold) imports unviable because of lower levy on refined gold imports, the government should cut the duty on raw material imports, Arora said. Supply of used gold remains uncertain as it moves in tandem with prices.

Customs duty on pure gold imports is around Rs 10,300 a kg, less than 1 per cent (0.60 per cent) of the current market price of Rs 17 lakh a kg.

The yellow metal is refined mostly in Zurich (Switzerland) for producing gold bars and coins approved by the London Bullion Markets Association (LBMA). Since LBMA standard gold bars are globally recognised, all trading activities are executed on the basis of the price announced by it.

Indian refineries have the capacity to produce LBMA standard gold bars. But since gold in India is not refined through processing ore, the yellow metal produced here is not on a par with the globally-recognised products. Hence, locally produced gold is sold at a discount to the imported metal of same purity.