China's gold consumption to cool after surge this year - producer

By Judy Hua and David Stanway

TIANJIN, China (Reuters) - China's gold consumption is expected to climb to more than 1,000 tonnes this year, though the trend is not sustainable and could drop below this level from 2014, the country's biggest gold producer said on Monday.

Meanwhile, gold output this year from China, the world's top producer, is set to climb about 7 percent to another record high of 430 tonnes, Du Haiqing, vice general manager at China Gold Group Corp, said at an industry conference held in the northern city of Tianjin.

Gold demand from China has surged by more than half in the first six months of the year as sliding prices of the precious metal lured buyers, reinforcing expectations that China will overtake India as the top consumer this year.

Gold consumption in 2012 was 832.18 tonnes, according to data from the China Gold Association.

Demand growth has dramatically outpaced production, causing imports from Hong Kong to surge and hover at more than 100 tonnes for five straight months up to September.

But this year's consumption was "abnormal", as a sharp drop in prices in April has sparked a buying frenzy, said Du.

"Consumption will gradually cool down. The current consumption level of over 1,000 tonnes will not be sustained and will fall to normal levels as consumers become more rational."

Du forecast China's gold production would hit 430 tonnes this year, compared with 403 tonnes in 2012.

China's net gold imports from Hong Kong have totalled about 855 tonnes for the first nine months. The high import figure, which is well ahead of a supply deficit of at least 570 tonnes, could be due to purchases by the central bank, analysts said.

China does not publish gold trade data and the numbers from Hong Kong, a main conduit for gold into China, give the best picture of the country's trade of the precious metal.

China's central bank is planning to increase the number of firms allowed to import and export gold and also ease restrictions on individual buyers of the precious metal, according to a draft policy document.

HIGH PRODUCTION COST

Du also called on Beijing to review its gold mine licensing system, where lax rules have allowed prospectors to buy and speculate on tenements without developing the resources.

This has driven up costs for producers as they are forced to purchase mining rights from private investors at an inflated price.

"China's threshold for mining rights is too low. Any company, regardless of whether it has exploration ability, can have mining rights," Du said, adding that around 70 percent of gold tenements were in the hands of private investors.

After a decade of heavy spending on exploration and new projects, gold miners around the world are seeking ways to cut costs after a sharp fall in the price of the precious metal has put the industry under intense profit pressure.

The average cash production cost for China Gold's listed unit, China Gold International Resources stood at $912 per ounce in the first six months of the year, up from $907 from year ago, according to the firm's first-half financial results.

(Writing by Fayen Wong; Editing by Ed Davies)