LAWRIE WILLIAMS: The falls and rises in Chinese gold imports
According to the latest data from the Hong Kong net gold imports by China from Hong Kong slipped back 25.66 tonnes from the 10-month high of 97.242 tonnes to 71.581 tonnes. Hong Kong remains the most significant entry point for imports of gold into China, but falls over the past two years in Hong Kong’s exports to the mainland have been more than made up with a very significant increase in mainland direct imports from other countries – notably Switzerland and the UK – following a change in Chinese policy which made direct imports easier from the beginning of 2014.
China gold expert analyst, Koos Jansen, writing on bullionstar.com, noted recently that taking known Chinese gold imports (calculated from export data from the key supplying nations – China does not release import statistics per se) that up to end September some 1,000 tonnes plus had been imported. With the latest figures from Hong Kong (above) and Switzerland (29 tonnes) the figure will have already reached at least 1130 tonnes purely through announced figures from Hong Kong (654 tonnes), Switzerland (217 tonnes), UK (210 tonnes – figs to end-September) and Australia (49 tonnes – but this figure is only up to end July). But of course other countries are almost certainly exporting gold to mainland China directly – some as byproduct from base metals and others in direct exports and we suspect the actual total may well be in the order of at least 1,200 tonnes or more already this year, which suggests total Chinese gold imports for the full year of around 1,400 tonnes plus.
If one adds Chinese domestic production of say 460 tonnes – we are getting close to Chinese gold available supply of close to 1900 tonnes. Add in scrap supply and this heads to 2,000 tonnes plus – but still well short of Shanghai Gold Exchange (SGE) deliveries which have already passed 2,210 tonnes and are headed for nearer 2,600 tonnes this year (See: my most recent article on SGE withdrawals - China gold demand already passes 2013 annual record.)
Jansen uses his data to express his concern over what the World Gold Council (WGC) reports as Chinese annual consumption – ca 1000 tonnes – and the true figure which he sees as being far higher and at least in line with the statistics noted above. In some respects Jansen may be being unfair to the WGC, which relies on external consultancies for its figures – GFMS up until the end of 2014, and more recently Metals Focus (and their figures are broadly similar). However because most world analysts and media seize on the WGC data as being definitive he feels that this august body is thereby perpetuating misleading data on total Chinese gold demand which is perhaps to the detriment of its members.
To be fair, the consumption data as presented by the WGC only satisfies certain parameters of demand and excludes demand sectors which we might consider as consumption – notably in gold used in the Chinese banking and financial sector as collateral and in other financial transactions. It is also not surprising that GFMS and Metals Focus figures are broadly similar given Metals Focus was set up primarily by former GFMS employees and the key China analyst they use was the former GFMS Executive Chairman – they thus utilise much the same consumption data.
We would concur with Jansen in believing that the WGC published data could be seen as unintentionally misleading in terms of true Chinese demand and it would be better represented by the sum of known gold imports, plus domestic production, plus a small margin for unknown imports at the very least. It’s not that any gold comes back out of China to reappear on world markets and in that sense it is certainly being retained in the Middle Kingdom. This would be, of course, still far short of SGE deliveries, which Jansen asserts is the true representation of Chinese demand – but even if not SGE volumes have to be giving us a guide to overall Chinese gold demand, and this year they are already at substantial new record levels with deliveries to date already exceeding the full year record level of 2,181 tonnes achieved in 2013.
But the WGC figures are not the only data which may give a misleading impression of Chinese gold demand. For many years the total of Hong Kong net gold exports to mainland China was used as a proxy for total Chinese imports – and some lazy analysts and some of the media still use the Hong Kong figures as such. But we think that nowadays Hong Kong exports only account for perhaps 60% of inward gold flows into China so using changes in these figures as a proxy for the ups and downs in Chinese demand is just as misleading – perhaps more so. At least the WGC is consistent in its data and once one understands its shortcomings it is, like the SGE figures, at least a guide to whether Chinese demand is rising or falling. But don’t take it as a true representation of Chinese gold flows. Import data plus domestic production would seem to be a far more accurate metric.