MUMBAI (Commodity Online): Gold refineries are facing a strange problem in India now. There is no yellow metal for them to process now. When the gold boom was at its peak in 2008 and 2009, the quantity of scrap gold used to come to the market was very high and many refiners had increased the capacity to process the scrap gold.
But, time has changed and the scrap gold flow to these refineries has halted. Gold refineries had built huge capacity over the years and they are now unutilised due to dearth of used gold. Hence, the overall capacity utilisation from the annual average of 30-35 per cent has come down to below 20 per cent.
Scrap gold recovery has currently declined by at least 10-15 per cent due to price stability.
Gold availability from captive refineries in the country may decline by 75 per cent to settle between 16-18 tonnes during the first quarter of the current calendar year, as compared to 64 tonnes in the corresponding quarter of last year.
First quarter of 2009 was exceptionally good for gold recovery which shot up sharply to 64 tonnes as investors of other asset classes rushed to cover losses in equity market in the post global economic slowdown led by the collapse of Lehman Brothers in September 2008. Gold scrap selling in India in the third and fourth quarters of 2008 was recorded at 16 tonnes and 20 tonnes respectively.
Gold availability from domestic scrap recycling declined to 17 tonnes in the fourth quarter ending December 2009, from 18 tonnes, 23 tonnes and a staggering 64 tonnes in the third, second and first quarters of the same year, respectively. In the fourth quarter of 2008, gold availability from domestic refining was 20 tonnes.
Generally, gold users in India offload a major part of their holdings when the price soars and then again when it comes down - giving a simmering hope for an upward movement.
Analysts believe retail consumers in India cashed in on their extra holdings of the yellow metal when the price surpassed Rs 18,000 per 10g in the first quarter. Fearing the metal may crash due to lack of fundamental support, they continued selling additional stocks in the second and third quarters as well.
In many markets, however, the supply of recycled gold has been relatively subdued. Price expectations appear to have adjusted higher and gold holders are anticipating a further price surge. Therefore they are reluctant to sell their existing holdings at the average price levels seen during the fourth quarter of 2009.
But, since, prices have stabilised, consumers are awaiting a fresh upward move in prices for a rebound in scrap sales and thereby, a higher capacity utilisation of gold refineries.