China's Gold Consumption May Surpass 1,000 Tonnes in 2013

Beijing-China (Nov 4)   the world's top producer of gold, is expected to consume more than a 1,000 tonnes of the precious metal this year, according to the country's biggest gold producer.

However, this trend is unlikely to continue in 2014, when consumption is likely to drop below that level, Du Haiqing, vice general manager at China Gold Group said at an industry conference in the northern city of Tianjin.

Gold production is set to increase by about 7% this year to another record high of 430 tonnes.

However, demand growth has drastically outpaced production, forcing China to import gold from Hong Kong.

Imports have hovered at over 100 tonnes in the five consecutive months to September, reported Reuters. China's net gold imports from Hong Kong have totalled about 855 tonnes in the nine months to September.

The high import figure, way above the supply deficit of at least 570 tonnes, could be due to purchases by the central bank, analysts said.

Meanwhile, the People's Bank of China (PBoC) is mulling new rules that permit more firms to trade in gold, alongside easing the restrictions imposed on purchases by individuals.

This year's consumption was "abnormal", as a sharp drop in prices in April fuelled a buying-spree, Du said.

"Consumption will gradually cool down. The current consumption level of over 1,000 tonnes will not be sustained and will fall to normal levels as consumers become more rational," he added

High Production Costs

Du urged Beijing to review its gold mine licensing system, where lenient rules have allowed explorers to buy and speculate on tenements - the pegging or notification of exploration licenses - without developing the resources.

This has driven up costs for producers, as they are compelled to buy mining rights from private investors at inflated prices.

"China's threshold for mining rights is too low. Any company, regardless of whether it has exploration ability, can have mining rights," Du said, adding that around 70% of gold tenements were in the hands of private investors.

The average cash production cost for China Gold's listed arm, China Gold International Resources, hovered at $912 per ounce in the first six months of 2013, up from $907 a year ago, according to the firm.

China is likely to surpass India as the world's top gold consumer this year.

Gold sales in China surged in the first six months of 2013 as shoppers loosened their purse strings when the prices of bullion fell.

The world's second largest economy consumed 706.36 tonnes of gold in the six months to June 2013.

It consumed about 460 tonnes of gold in the first half of 2012; and 832.18 tonnes over the entire year, according to data from the China Gold Association (CGA).

The country produced 403 tonnes of gold in 2012.

Beijing does not release data on gold imports or domestic consumption. Market players have to rely on import numbers from Hong Kong and on data from trade groups such as the CGA to determine demand.