Gold Imports to China Seen Lower by StanChart as India Rises

Apr 30, 2014 7:20 am ET

(Updates prices in fifth paragraph.)

April 30 (Bloomberg) -- Gold imports by China may drop over the next few months after the yuan fell, while shipments to India are picking up, according to Standard Chartered Plc, signaling contrasting outlooks for the two largest users.

Weakness in the yuan made domestic bullion in China cheaper than gold bought from overseas, said Jeremy East, global head of metals trading, who relocated to Hong Kong from London in June. Flows into India are higher than a year earlier and there’s speculation import curbs may be eased, said East.

China overtook India as biggest consumer last year, when Asia’s largest economy increased purchases to more than 1,000 metric tons and India’s restrictions hurt official imports. The two countries accounted for more than half of global demand last year. While bullion has rebounded after slumping in 2013, Goldman Sachs Group Inc. is among banks forecasting a resumption of declines as the Federal Reserve winds back stimulus.

“The expectation is gold orders into China will be lower in the next few months because of this exchange-rate move,” said East in an April 25 interview in Hong Kong. “We’re waiting to see whether it will have impact on total demand for gold from China for this year.”

Spot gold in London increased 7.3 percent to $1,289.82 an ounce this year by 7:19 p.m. in Singapore, while metal of 99.99 percent purity on the Shanghai Gold Exchange rose 9.9 percent to 260.35 yuan a gram ($1,292.19 an ounce). In March, the average price in Shanghai was below that in London for the first time since September 2012. The yuan has fallen 3.4 percent this year, the worst performance among Asia’s 11 most-traded currencies.

Hong Kong

Net imports into mainland China from Hong Kong dropped to 80.6 tons in March from 111.4 tons in February and 130 tons a year earlier, according to Bloomberg calculations based on data from the Hong Kong Census and Statistics Department. Over the first quarter as a whole, net shipments remain higher, totaling about 275.6 tons in 2014 compared with 210.5 tons in 2013.

The yuan has declined to the lowest level since 2012 this month as economic growth in China slowed in the first quarter. Officials may prefer a weaker yuan to steer export growth, Daniel Chan, a Hong Kong-based strategist at China Silver Global Investment Consultant Ltd., said on April 25.

Gold demand in China, the largest producer, will rise about 25 percent to at least 1,350 tons by 2017 as the population gets richer, the World Gold Council forecast in a report on April 15, adding that as much as 1,000 tons may be tied up in financing. Demand in China remains resilient, and investors’ concerns about financing are overblown, Australia & New Zealand Banking Group Ltd. said yesterday.

Import Taxes

The Indian government raised the import tax three times last year and tightened financing to rein in a record current- account deficit and reverse a slump in the rupee. Official imports dropped 4.1 percent to 825 tons last year, according to the London-based council, which said unofficial inflows were probably toward the upper end of 150 tons to 200 tons.

“Gold now has started to flow into India, not as big as it was years ago but it’s picking up, higher than a year ago,” said East. “The views are there’s a chance they will relax the gold-imports policy.”

While India’s government may remove some of the curbs, they won’t do so completely as that would hurt the current-account deficit, Victor Thianpiriya, a commodity strategist at ANZ, said April 16. India will probably keep restrictions on imports to defend the rupee, according to Rajesh Khosla, managing director at MMTC-PAMP India Pvt, the country’s biggest refiner. India’s currency has advanced 2.3 percent this year.

Standard Chartered started leasing storage space for bullion in Hong Kong to facilitate shipments to China, said East. The trading team in Hong Kong, which handles both base and precious metals, has grown to half the size of the London team since his move, said East, without providing the headcount.