LAWRIE WILLIAMS: Indian gold imports; High but ignore the hype!
Definitive figures for Indian gold imports for May are now in and they are close to some preliminary figures published a few weeks ago in the Indian press. They came in at 123.7 tonnes – the earlier Indian media estimates had been around 126 tonnes.
Figures for May, and probably for June too, will have been anomalously high ahead of the announcement of the Goods and Services Tax (GST) that would be applied at the beginning of July. Importers would have thus been hedging their bets against a possible high tax imposition. In the event though, the GST level came in at 3%, in line with most expectations, which meant that, with the existing 10% import duty, gold, silver, gold jewellery and processed diamonds would be taxed at 13% which is effectively only 0.5% higher than the pre-existing 12.5% made up of 10% import duty plus 2.5% in ancillary taxes. There remains hope that the government may reduce the import tax level in order to counter the growth in gold smuggling into the country, which some estimates put as high as 250 tonnes annually (worth around US$10 billion at the current gold price), but the value of imported gold is such a major element in the nation’s current account deficit that some see this as unlikely unless the foreign exchange budget can be balanced, but any changes would seem now unlikely be made before the next annual budget statement in early 2018, if then.
Above is a chart of Indian gold imports for the past five years from Nick Laird’s www.goldchartsrus.com website received via Ed Steer’s Gold and Silver Digest. As can be seen while the first five months figures are running well in excess of last year, they are still behind those for 2015, and way down on the 2013 totals although the latter slipped in the second half. The media though tends to emphasise year on year movements so in relation to last year (the ultra-weak 2016 affected by a jewellers strike and a dearth of early year buying) this year’s figures are looking particularly strong – but 2016 was anomalously low so year on year percentage comparisons should be disregarded as media hype and as largely irrelevant. The strong import figures year on year look to be continuing in June, yet are well below those for the previous four months according to preliminary estimates published in the Indian media, but this doesn’t stop reports suggesting that gold imports rose three-fold that month. Thazt may be true but that is compared with an unusually low figure a year earlier.
If the June preliminary estimates are correct, Indian gold imports in H1 will have come in at around 514 tonnes according to GFMS which, on the face of things suggests that Indian gold demand for the full year could be back above 1,000 tonnes, but now the new GST level is in place one should anticipate a fall-off in Indian imports until mid to late October when the festival season followed by the wedding season, gets into full swing. Diwali, which is a key festival for gold demand, this year falls on October 18th to 22nd, within which Dhanteras is the first day of the Diwali Festival. The period from July to end October though (Chaturmas) is considered inauspicious for Hindu weddings, but particularly auspicious dates kick in from mid-November and continue until end June the following year. Overall we suspect Indian gold imports for the full year will come in a little below 1,000 tonnes, but still well up on last year’s total of 510 tonnes. This figure has already been exceeded in H1 which gives a strong indication of the turnaround this year in Indian import, and likely demand, levels.
13 Jul 2017