LAWRIE WILLIAMS: China gold output falters for first time in around 20 years
The latest figure for annual Chinese gold output has seen a small decline of around 0.4% in 2015 according to the China Gold Association (CGA). This looks to be the country’s first production fall after around 20 years of continuing growth which tripled Chinese production to over 450 tonnes last year. The actual 2015 figure according to the CGA was 450.05 tonnes, bringing it down from 452 tonnes a year earlier according to the CGA figures. Other estimates have put 2014 output slightly higher than those from the CGA, but only marginally so.
Most analysts had expected China’s gold output to continue growing in 2015 – See the GFMS estimates for the Top 10 world gold producers published here only two days ago. However it had been anticipated that any such growth would be small compared with an annual production growth rate averaging around 11% a year over the prior 10 years, although the rate of increase had been slipping.
Chinese gold demand in recent years has been simply enormous, particularly if one takes into account the large amounts being absorbed by the financial sector which do not find themselves included in the major consultancies’ estimates of China’s gold consumption, as we have pointed out before. The CGA, which has an association with the World Gold Council, uses this more limited figure for domestic consumption in its own report putting it at 985.9 tonnes last year (up 3.7% year on year) – this figure being hugely below known Chinese gold imports alone, let alone imports plus domestic production and scrap supply (See: China’s gold absorption, not retail consumption, is the key to global gold flows) for a more detailed explanation.)
Even with the small production fall, China remains comfortably the world’s No. 1 gold producer, as it has been for the past nine years – with output last year around 1.6 times that of second placed Australia. However the fall does emphasise the point made in our earlier article on the world’s Top 10 gold miners in 2015 that global gold output is at last beginning to turn down. Even the Chinese miners are not immune from the effects of the lower gold price levels of the past three years.
What may well be significant though, is that overall Chinese demand remains strong – indeed the CGA is reported by Reuters as suggesting that Chinese demand will continue to grow. If domestic gold output is falling then this will mean even bigger gold imports in the years ahead, thus further exacerbating the global flows of gold from West to East. What goes into China doesn’t come out again. Don’t be put off by the apparent fall in Chinese GDP growth – the nation’s GDP, and its middle classes, are still growing albeit at a slower rate which suggests a continuing rise in domestic purchasing power.