According to the latest World Gold Council (WGC) quarterly gold demand trend report, the supply of recycled gold in Q3 stood at 61 tonne, its highest since the first quarter of 2009 when it was 64 tonne. The reprocessed supply thus grew 80% y-o-y and was almost three times the average quarterly supply of the last three years.
India was the only developing nation that saw an increase in recycling activity, even as global scrap supply fell for the sixth straight quarter, noted WGC based on the data provided by Thomson Reuters GFMS a precious metal consultancy.
The increase is attributed to the shortage of fresh supplies in the market, along with higher prices that attracted investors to part ways with their gold holdings.
In a market short of fresh supply thanks to the governments supply clampdown a surging local gold price, together with promotional offers by the jewellery trade (which was short of metal), encouraged a sharp wave of selling, leading to a record quarter for Indian recycling, said the report.
In the third quarter, the standard Mumbai spot prices averaged R29,132 per 10 gm compared to R27,230 in the previous quarter. On the back of the changed regulations, the net imports in the July-September quarter fell to 85 tonne against a record import of 338 tonne in the three months to June 2013. Over the same period, jewellery consumption dipped by 23% to 148 tonne y-o-y, while investment demand fell by 48% to 43.5 tonne compared to the same quarter last year.
As per the WGC report, the confusion over the complex new regulation and a sharp depreciation of the rupee, which pushed up local gold prices to near record levels, impacted gold purchases.
Market participants had reported an increase in the scrap supply, especially since August 2013, when the government hiked the import duty to 10% and the RBI mandated that 20% of the imported gold by nominated agencies and banks has to be channeled towards exports for them to import further.
The supply deficit observed in the third quarter resulted in higher recycling... The imports have just started to pick up after the regulators provided clarity around the new import rules, especially related to the 20/80 rule which involved the customs department, said an industry expert.