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Prepared by:
Piyush Agarwal
Mba ( Et)
PRECIOUS METALS
GOLD
OVERVIEW:
Gold prices averaged $973/toz in 2009, up 12 percent from $872/toz in 2008. Prices have
climbed for eight consecutive years and are up 3.6 fold since 2001. Although prices slipped to
$760/toz in November 2008 amid the financial crisis and dollar appreciation, they resumed their
climb on renewed weakness of the dollar and investor concerns about inflation, surging above
$1,200/toz in December 2009. An important driver was the growth in physically backed
exchange traded funds (ETFs). In 2009, gold ETF holdings rose by 563 tons or 47 percent—
equivalent to 23 percent of global gold mine production. Near-term prices are expected to remain
relatively firm, given investor concerns about the dollar, inflation, and macroeconomic-financial
conditions. Over the longer term, prices are expected to fall back toward$850/toz as high prices
discourage demand and stimulate new supplies. In early November 2009 the IMF sold 200 tons
of gold to the Reserve Bank of India (and subsequently12 tons to Sri Lanka and Mauritius). The
IMF is authorized to sell a further 191.3 tons—either off-market or, if sold into the market,
within the provisions of the third five-year Central Bank Gold Agreement which began in
September 2009 and limits total annual sales to 400 tons. Gold is the one commodity of which
essentially all production ends up in above-ground inventory and for which investor sentiment
thus remains a key determinant of prices. High prices will restrain physical demand and
stimulate new supplies from mines and scrap. Mine supply is projected to rise modestly, as
prices are expected to remain conducive to expanding capacity. Though producer hedging has
fallen, new projects may require hedging for project finance, thereby adding to supply.
Global Gold Production (metric tons)
Countries 2005 2006 2007 2008
China became the world’s largest Gold producer in 2007 and held that position in 2008, and with
output up 13% in the first seven months of 2009, it seems to be extending its lead. South Africa
continues to see output fall, with H1’09 production falling and output in July off 7.6% year on
year. Australia’s mine production is on the increase again as is Russian production that rose
21.7% in H1’09 to 89.2 tones. In Peru and Indonesia output also increased. 2009’s production is
expected to be around 2,488 tons, up around 3% from 2008’s level of 2,416 tones and this is
expected to climb next year by around 2% to 2,537 tones. The extra 50 tones will come from the
numerous expansions and new mines scheduled to come on stream predominantly in Australia
and Canada. However, even if production rises to this level it will still leave mine output below
the level reached in 1998.
Global Gold Consumption (metric tons)
Korea Rep. 83 82 86 78
Russian Fed. 61 65 79 76
Egypt 71 50 57 65
Indonesia 87 65 63 61
Switerzland 56 61 62 59
Malaysia 74 58 61 57
UAE 55 47 49 46
Germany 50 49 49 46
Pakistan 64 54 50 44
Iran 41 36 41 41
Thailand 69 53 48 40
Canada 27 22 22 40
Singapore 30 29 30 28
Taiwan, China 32 31 30 28
Austria 9 6 7 26
GOLD STATISTICS1
U.S. GEOLOGICAL SURVEY
[All values are in metric tons (t) gold unless otherwise noted]
The demand for gold is expected to arise from the resurgent South East Asian Economics. After
the recovery from the recent low levels of economic activity, these economies have began
returning to their pre crisis levels prompting rise in demand for gold and jewellery. The overall
demand for gold from these economies, will, however, depend on the extent to which the
economies will go for gold as a storage and investment product.
Indian demand:
According to the World Gold Council's latest, "Gold Demand Trends Report", gold tonnage off-
take in the fourth quarter of 2009 totaled 180.7 tons worth US$ 6.39 billion, up 17 per cent from
154.4 tons in the previous quarter and up 13 per cent from 159.6 tons in the fourth quarter of
2008.
• India is the largest consumer of gold jewellery in the world, accounting for about 20 per
cent of global gold consumption
• The Reserve Bank of India, bought 200 metric tones of gold worth US$ 6.7 billion from
the International Monetary Fund in October 2009
• A small village town called Chavakkad in central Kerala, a southern Indian state,
consumes 20 per cent of all gold sold in the country.
CURRENCY MOVEMENTS :
Due to currency movements while the dollar prices of the gold are weak the local prices are
expected to rise in a number of gold consuming countries, noticeably in Euro zone, Turkey,
Pakistan and Indonesia.
Demand for gold is expected to be strong during 2010, driven by growing demand for jewellery
in China and India as well as an increase in European and US investment in the context of
continued economic instability, sovereign risk and the threat of a ‘double dip’ recession.
Demand in India and China will continue to grow, driven by jewellery demand, in spite of high
local currency gold prices. In Q1 2010, India was the strongest performing market as total
consumer demand surged 698% to 193.5 tones. In China, demand proved resilient; demand
increased 11% in Q1 2010 to 105.2 tones.
This strong demand is despite high local gold prices, which on May 12 in India increased to Rs
56,032/0z, the highest level for the year, while at the same time in China prices reached an all-
time high of RMB8,480/oz, suggesting that consumers in India and China are becoming
accustomed to higher gold prices.
Concerns over Greece’s public finances and debt contagion fears in Europe have led to strong
buying in particular for gold coins, bars and gold exchange traded funds (ETFs) during May
which may show up in the Q2 2010 figures. While momentum in ETF tonnage paused during Q1
2010, gold ETF flows started to rise strongly again in April and May as investors sought less
volatile investments in which to protect their funds against economic turmoil. On 20 May, SPDR
Gold Shares (GLD) held a record 1,200 tonnes, with a value of US$46.88 billion.
The analysis is sensitive to estimates of the sustainable component of costs, and cost inflation
rates, but scenarios point to a long-term price of between US$600 and 650/oz.
• Incentive Price: Given gold's declining production profile over the next few years
incentive prices have more relevance than in other commodities. We have assessed 90
tentative, possible, probable and high probable projects capex and capacities.
We have assumed industry average project capex of US$3570/oz falls by 20%, yet
average project capacity of ~317koz pa remains unchanged. Average project mine life is
13 years, but we have assumed this is extended to 17 years through resources to reserve
conversion. Industry average costs are assumed in line with our long-term cost
assumptions discussed above. The long-term prices required to generate 15%-20% IRR
on new projects ranges between US$950/oz and US$1150/oz.
• Investment Drivers: Investment drivers are becoming a more important determinant of
the gold price than mine economics. In the carts below we present the relationships with
the major investment drivers: interest rates, inflation and the US dollar. We conclude that
the latter, the long-run secular decline in the US dollar, has been the most important
driver of the gold price and we expect this to continue.
• US Dollar — Decline: The secular decline in the USD has been the most important
driver of the strength in the gold price. The following Figures show the inverse
correlation between the gold price and the USD against the Euro, Yen and SDR.
Abatement of downward pricing pressure from central bank selling in recent years has
allowed the USD driver to become more apparent.
In addition the influence of the weakening USD trend, the USD/ gold price relationship is
shifting.
From a long-term perspective we expect the USD to remain weak.
Our long-term currency forecasts are:
EURUSD1.31
USDJPY 94
These levels lend support to a long-term gold price of around USD800/Oz, based on the
relationships that have prevailed over the last 3 years, although a considerable higher price is
indicated by more recent relationships.
FUTURE PRICES:
With the U.S. dollar in a freefall and global gold demand rising, the precious metal will likely
continue its bullish trend through at least the first half of 2010. It could rise as high as $2,000 an
ounce, which would represent a 73% gain from current record levels.
In India, gold has traditionally played a multi-faceted role. Apart from being used as an
adornment, it has been treated as an investment and also as a hedge against currency
depreciation.
India is the World’s largest consumer of gold and growing Indian economy and normal
monsoons are the factors that are boosting the demand for gold, which usually peaks during the
festival and wedding season that begins in Sep. In India the rising demand in gold is met through
channels other than the official ones also.
One fourth of the World’s gold consumption is consumed in India and 80-85% of Indian
consumption is met through imports.
The ore content in the Kolar Gold fields has come down drastically and mining is no longer
economical. The Bharat Gold Mines is closing down and Hutti Gold Mines (HGML) is
operating at a very high cost.
With the domestic gold production likely to be nil in the near future, India will soon have to rely
entirely on imports to fulfill the huge domestic demand.
Gold is going through a very interesting time, but there are a multitude of factors influencing the
price some of which are quite contradictory such as the presence of deflation and the fear of
inflation. We also have an uneasy feeling that after the near catastrophic events seen over the
past twelve months, the sharp recovery seen since March seems too good to be true and for that
reason it probably is. Indeed given the massive governments’ stimulus packages and bailouts
mainly paid for with borrowed and printed money, there is considerable uncertainty as to what
lies ahead. The global imbalance between those countries that have massive dollar debt and those
with huge dollar reserves, is also coming to a head as the US seems set on a path to devalue the
dollar by means of quantitative easing. In addition, the weak dollar is prompting competitive
currency devaluation and with numerous former ‘hard’ currencies trying to lose value, it is not
surprising that faith in fiat currencies is waning and those with money are looking to diversify
into assets with intrinsic value, of which Gold and other commodities are top of the list. Indeed
this might well be what is driving base metals higher, even though demand is weak and
stockpiles are mounting. The fact US dollar creditors are talking about the need for another
global reserve currency shows that they are losing faith in the dollar.
Overall, given the parlous condition of the world’s financial markets in recent years, it is
doubtful that the short-sharp asset-bubble deflation seen in the second half of 2008 and first
quarter of 2009, resolved the matter completely. There are still many unsolved problems and
imbalances that need to be settled and as there does not seem to be any easy way to fix them, the
financial system and the heavily indebted countries are likely to experience more hardship in the
future. The Western financial system has always had been founded on confidence, and in 2008
this confidence was shattered. The rebound across markets this year has restored some hope but
with many of the underlying issues unresolved, this new dawn may prove false. If events take
another turn for the worse, the fear seen in 2008 is likely to be renewed and another flight to
safety could well keep the bull market in Gold go ing for a considerable while longer and a take
prices considerably higher.
It seems likely that there is still a big window of opportunity for Go ld to shine in the months
ahead. At some stage, the problems facing the global economy, especially those in the West, will
be solved and a return to normality will unfold. When that process begins, safe-haven assets are
likely to be sold. However until such time, Gold is likely to remain highly soughtafter as a store
of wealth and we would not be surprised to see Gold prices rise to, perhaps significantly, new
highs. There are likely to be periods of widespread risk reduction that carry Gold prices lower
too, but each dip is expected to attract strong scale down buying from investors and fabricators.
Overall, we would expect the bulk of trading between now and the end of 2010 to be within the
$850/oz to $1,400/oz range.
.
(Tonnes)
SILVER:
Overview:
For years the silver market has been characterized by falling demand in the photographic
industry and tepid jewellery off take, while supply has seen rapid growth. The resulting market
surplus has thus risen from 1,800t in 2000 to an estimated 7,200t in 2010. Under normal
circumstances such growth in supply relative to demand would see prices under extreme
downward pressure, but investment demand has soared since the launch of the first silver-backed
ETF in 2006, and now accounts for more than 400 Moz (12,440t) of silver held in bullion bank
vaults. Physical investment in the form of coins and bars has also helped support prices in the
face of this explosive growth in supply. Price support has increasingly come to depend on
investment demand more than industrial demand.
However, new and emerging end uses for silver could well pick up the baton from photography
as far as silver industrial demand is concerned. We estimate these new end uses, comprising
solar, medical, textile, radio frequency identification, water purification, and food hygiene,
among others, will more than offset the decline in photographic consumption and lead to the
silver market surplus eroding significantly by 2020. The degree to which the current surplus falls
depends on a number of factors, including the growth in these new areas of demand, the response
by the investment community and growth in mine supply.
World Resources: Silver was obtained as a byproduct from processing and smelting copper,
gold, and lead-zinc ores. Ores from these polymetallic deposits account for more than two-thirds
of U.S. and world resources of silver; the remaining silver resources are associated with veins
and submicroscopic gold deposits in which gold is the primary commodity. Most recent silver
discoveries have been associated with gold occurrences; however, base-metal occurrences that
contain byproduct silver will continue to account for a significant share of future reserves and
resources. Peru, Mexico, and China are the world’s leading producers of silver, in descending
order of production.
Demand
Industrial application 351.2 367.1 409.3 430 455.3
Photography 196.1 181 164.8 145.8 128.3
Jewellery and Silverware 276.7 247.5 249.6 224.9 222.2
Coins and medals 35.3 41.1 40.6 39.8 37.8
Total Demand 859.3 836.7 864.4 840.5 843.7
Source: Ministry of metals outlook
In recent years, the main world demand for silver is no longer monetary, but industrial. With the
growing use of silver in photography and electronics, industrial demand for silver accounts for
roughly 85% of the total demand for silver. Though Silver has a long and distinguished history
as being the metal of commerce, it has shifted roles in recent years to be more of an industrial
metal than a precious metal.
The single largest use of Silver is for industrial purposes, with the electronics industry making up
the lion's share of this demand. Jewelry and Silverware is the second largest component, with
more demand from the flatware industry than from the jewelry industry in recent years. The
photography industry is a large user of Silver. Silver is an important ingredient in both the
manufacturing of film, as well as in film processing. Silver coinage accounts for only a small
portion of the demand for silver in recent years.
Silver is first and foremost an industrial metal. Silver components are found in everything from
light switches and circuit breakers, to personal computers, stereos, telephones, microwave ovens
and automobiles. Jewelry and silverware demand has been steadily decreasing as a percentage of
total use of Silver for many years, since manufacturing and electronics industrial uses of Silver
increase. Though Silver is often thought of as a precious metal, in recent years the fastest
growing segment of demand and use for silver has been from industry, hence we tend to view
Silver as more of an industrial metal than as a precious metal.
India, the largest consumer of silver, is gearing up to start hallmarking of the white precious
metal by April. India annually consumes around 4,000 tones of silver, with the rural areas
accounting for the bulk of the sales.
According to GFMS, total global silver fabrication grew 1 percent in 2007 to 843.7 Moz. In fact,
in the period since the technology related slump in 2001, industrial applications have added an
impressive 120.1 Moz to silver demand. A key factor behind the increase last year was the more
than 6 percent rise in the electrical and Silver 9 electronics sector, which broke the 200 Moz
mark for the first time. India, China and the United States accounted for 70 percent of the world
rise in all industrial uses, while Germany, Italy and France also posted gains. Total industrial
demand reached 54 percent of total global silver fabrication demand in 2007. Silverware demand
fell by a modest 4 percent in 2007 to 58.8 Moz, as losses in India, Europe and Mexico were
partially countered by gains for Russia and China. Photographic demand continued to decrease,
falling by 11 percent in 2007 to 128.3 Moz. The bulk of the decline was accounted for by lower
consumer demand for color film, this sector being most affected by further inroads from digital
photography.
Silver mine supply is relatively price inelastic and largely detached from the fundamental
supply-demand aspects of the silver market. This mine supply is set to grow steadily throughout
the next decade, largely due to the broader growth in gold and base metals’ mine output, because
silver is largely mined as a primary as well as a co- and by-product. About 30% of total annual
silver output is from primary production, with 15%-20% as a co-product and the balance a
byproduct. Primary supply is set to fall to a low of 23% by 2020, as co- and byproduct silver
mine supply becomes more dominant. However, will this extra mine supply be sufficient to meet
projected demand growth, considering these new end uses? Notwithstanding declining
photographic off take – since there will inevitably be a like-for-like fall in photographic
recycling, albeit somewhat lagged – we estimate that these new end users will grow at a
combined compound annual growth (CAGR) rate of more than 12% in the next 10 years. ETF
demand may grow in response, as these new end uses come to the fore and the shrinking of the
global silver surplus becomes more evident. The silver price is therefore almost certain to rise in
our view – but to what extent must be uncertain, simply because a substantial price rise would
inevitably threaten some of the new end uses that are developing. The higher the silver price rise,
the more some of these new silver consuming technologies would seek to substitute the metal
with cheaper products. But tighter silver market fundamentals are very likely to fuel investment
demand growth. Strong silver mine supply growth will therefore be critical to avoid any potential
market deficit ahead, but at an estimated CAGR of 2.4% in the next decade, from more than
22,000t in 2009 to more than 28,500t in 2020, keeping supply running well ahead of potential
demand could be a very tall order.
Our supply-side estimate includes advanced projects as well as existing mines and mine
expansions. It also includes identified uncommitted projects that might come online in the next
10 years, and it is these latter projects that will determine the market balance by 2020. Should
none of the uncommitted ounces be brought online, but ETF demand dip slightly, to say 1,500-
2,500t/year, then we estimate a market surplus of just 800t in 2020 (light blue line in chart
below). If ETF demand grows to more than 2009 levels (more than 4,000t) in the period 2014-
2020, then we estimate a market deficit of as much as 2,400t in 2020 (grey line). But if mine
supply, including uncommitted output, all comes online without delay, and ETF demand declines
to as low as 1,500t/year, then our market balance will show a surplus of about 4,900t (dark blue
line). The pink line market balance scenario considers that all the uncommitted ounces of mine
supply come online while investment demand rises. It is therefore evident that, from current
levels, the silver market balance is trending down from a large surplus to either something more
manageable or even into a deficit. Demand growth in the new end use sectors, as well as
investment demand (coins, bar hoardings or ETFs), therefore will have an increasingly critical
influence over the silver market balance in the medium to longer term – and prices.
New Opprtunities In Silver Market:
The identified new end use sectors that will come to determine the silver balance ahead are
reliant on silver’s unique properties, which have been understood and utilized for millennia.
Among these unique properties are the fact that silver is the best conductor of all metals,
and that its antimicrobial properties offer perhaps excellent protection against infection and
diseases. These properties may see silver gain recognition as the greenest and cleanest of all
metals, leaving it best placed to tackle certain important problems that face the world this
century, such as improvements in security measures, climate change, health issues, and the
ageing Western population.
The chart above shows our estimates as to how these new uses will evolve in
the next 10 years and how much additional silver they could potentially
consume. It should be noted that these projections are very conservative; it
is quite possible that demand may exceed our base case scenario.
SILVER-INDIAN SCENARIO:
In India, the recent Indian earthquake has raised fears that domestic silver
fabrication demand could fall in response to dishoarding and the Govt’s plans
to raise taxes in the year 2001, but from a national perspective Indian incomes
are likely to record a solid increase in 2001, tempering the impact of these
higher taxes.
More favorable economic conditions from the year 2020 are expected to
increase the demand growth for silver to an upward trend.
Role of Gold Prices In Silver Trade:
The steady increase of investment in silver was heavily influenced by increases in gold prices
during the past few months. In general, we find that gold prices tend to lead movements in silver
prices. Yet, silver has outperformed gold by a wide margin through 2009. This is not unusual and
this relationship can work through several channels. For instance, there are some silver and gold
investors who increase their exposure to these precious metals for similar fundamental reasons
such as a weakening dollar or an increase in liquidity. Given that silver is cheaper than gold,
market participants can substitute into the less expensive alternative.
In our view, the recent easing in monetary policy has had an even more pronounced impact on
silver prices than exchange rate movements. An increase in liquidity tends to push silver prices
up.
The link between liquidity and silver prices works through various channels in our view,
including the following two:
• Uncertainty: Central banks tend to boost the availability of liquidity during economic
slowdowns. The appeal of silver as a store of value increases during difficult economic
times. Incidentally, this uncertainty is also reflected in recent concerns over the
sustainability of equity price rises, which has attracted silver buyers back into the market.
• Funding costs: central banks have various options to bring economies back on track and
a reflation of asset prices is one measure in their toolboxes. Low interest rates reduce the
costs for investors to fund their positions and assets like silver generally benefit from this.
Tipping the Balance In Silver Market:
Aggregating the identified new end uses, we estimate that demand from
these new sectors will quadruple in the next ten years to at least 230 Moz,–
or about 25% of world silver demand, from about 8% today. Mine supply
growth, investment demand and future industrial off take growth will all be
critical in determining the market balance. Supply growth will be largely
independent from the fundamentals affecting the silver market and, despite
projected growth in byproduct and co-product output, we doubt that it will
meet the growth in demand. Silver’s mid and long-term prospects are
therefore more convincingly bullish than they have been for some time.
As the current surplus begins to erode over the next few years we expect a
reaction among the investment community, with ETF demand likely to hit
new records, possibly bringing about a deficit. However under these
circumstances, and rising prices, miners will be incentivized to bring on
greater supply. The resultant market balance by 2020, we forecast, will see a
surplus of about half of today’s, more than 7,000t.
Factors Driving Silver Market:
There were major two factors that supported the silver market to rise:
First, economic optimism is increasing, unsurprisingly in the case of China, which
continues to post very strong economic data, but also in the US, where employment data
is looking better than it has, and which is feeding into consumer confidence.. Base metal
prices leapt higher after 24 March, not coincidentally when the gold/silver ratio improved
sharply for silver.
Second was clearly the rally in gold, which gathered pace after an indifferent start to the
year for the yellow metal.
Silver’s volatility means that one moment it can look very strong, with everything going for it,
the next fundamentally weak. Recently it has been the former, with base metals, PGMs and the
gold price increasing, boosting silver’s industrial demand and its safe-haven/monetary metal
demand. Over a slightly longer period, for example since the start of 2010, it hasn’t performed so
well, either relative to gold or to the industrial metals. The ETF outflows are curious, and
perhaps represent a decision to get out of silver on behalf of one or a few big holders as much as
a general trend. According to recent finding and analysis the silver should fall back a little, at
least in relation to gold, but if investment demand returns, the market may be surprised again.
London fix: $16.50/oz-$18/oz.
Silver has functioned largely as a cheap proxy for gold in the late stages of gold bull market with
the gold/silver ratio rising to 66.2 in 2009 from 63.1 in 2008 as gold prices surpassed
US$1,000/oz. This compares with an average of 62.1 between 2001 and 2009. As gold prices to
remain above US$1,000/oz in 2010 and 2011, the investment demand to deliver strong relative
performance for silver over this time. As a result, the silver price forecasts for 2010 by 31.6% to
U$19.35/oz on an expectation of a return to 62 in the gold/silver ratio. However, the silver prices
to fall in line with gold prices in 2011 as rising US interest rates result in an end to the
weakening US dollar cycle.
Investment demand is a smaller proportion of total demand for silver, at 15%, compared with
38% for gold. Total fabrication demand fell 10% in 2009, largely as a result of the impact of the
global financial crisis on electronic and photographic fabrication demand, and will take time to
recover given the exposure of these market segments to a sluggish OECD recovery. Furthermore,
rising bi-product production from gold, copper, and lead zinc mines should also keep the market
well supplied, especially as official sector sales are a much smaller factor in the silver market
than in the gold market.
MMTC’S PLAN FOR SILVER IMPORTS AND MMTC’S SHARE:
(Tonnes)
PLATINUM:
OVERVIEW:
Platinum prices have been hit hard by the recession, declining from their 2008 highs of
$2,301/oz to just below $1,500/oz at present. This correction was initially driven by a liquidation
of positions from investors, which was reflected in sharp declines of assets under management in
ETFs especially in 2008. In addition, the cyclical slowdown in the car industry meant that
platinum demand from auto catalyst producers would likely drop around 33% YoY this year.
The platinum market was oversupplied to the tune of 4t (128koz) in 2009.
Demand :
Most of this year’s demand weakness came from the car industry. Auto catalyst producers
reduced their platinum use by 33% YoY or 40 tones. Meanwhile, the market share of the
jewellery industry, typically not a major buyer of platinum, has increased significantly, largely
driven by China. Given that some of China’s platinum purchases went into stocks, there is a risk
that the country’s imports may be somewhat lower next year.
Investment demand remains strong, highlighted by the steady increase of assets under
management at platinum exchange traded funds. The influence of ETFs on platinum is
substantial as each share issued is backed by physical metal, which is locked away and not
immediately available to the physical market.
The substantial part of the investment demand is accounted for by medium-term investors and
thus these buyers can give support to prices going forward. At the same time, the platinum
demand from car producers to bounce back sharply next year, which should also help to erode
this year’s surplus.
The ongoing focus on safety issues, rising power costs, and strengthening currency to put upward
pressure on South African costs over the medium term. In addition, greater exploitation of deeper
UG@ reef deposits will likely tend to lower the platinum yield from South African mines, and
bolster the proportion of other platinum groups metals in the South African product mix.
Platinum miners continue to face a host of problems, including labour unrest, safety issues and
uneconomic shafts. Even though some of these issues were offset by the commissioning of new
projects, platinum production remains well below peak levels.
Thus this change is not expected in 2010 and together with a strengthening of demand,
fundamentals should therefore remain healthy. Hence, the average price forecasts at $1,440/oz
in 2010 and $1,750/oz in 2011.
Although the net autocatalytic demand to remain a mainstay of metal usage over the forecast
time horizon, rising from a 40% share in 2009 to 44% in 2015, we expect the increase in
investment and chemical-related demand, a resilient jewelry market, and constrained production
growth to result in deficit markets until 2015 with positive benefits to medium-term prices.
.
JEWELLERY :
OVERVIEW:
Gems and Jewellery market is highly unorganized and fragmented with around 96 percent of the
total players running family-owned businesses. It is estimated that the country has around
450,000 goldsmiths, 100,000 gold jewellers, 6,000 diamond processing players and 8,000
diamond jewellers.
The market for diamond stood around US$~billion in 2005, in terms of retail value. Gross
domestic product (GDP) has a great significance over the demand for Jewellery in the country,
which may help the industry to grow in near future. India ranks on seventh place in the world in
terms of diamond Jewellery retail value.
Raw material Import Items for Gems and Jewellery (2007 vs 2008): India
Gems and Jewellery Jan-Dec Jan-Dec Share in %
Import Items 2007 2008 2007 2008 Growth
USD million Rate in %
1. China is emerging as a major exporter in the world jewellery market. USA has granted
the “Most favored Nation” status to China which entails doing away with the 6.5%
import duty i.e. being levied on jewellery imports into that country from other countries
including India.
2. Among industrialized economies, Europe is seen to have the best prospects for jewellery
especially with a major round of tax cuts in Germany, France and Italy.
3. According to Economic Intelligence Unit the star performer could well be the oil-rich
economies of the Middle East and North Africa with growth in this region estimated at
4.7% for 2001, making it the fastest growing region in the world.
4. In Latin America, Brazil is forecast to post growth rates acting as a locomotive for
surrounding Latin American countries.
5. The Japanese economy is picking up and as such the Japanese market looks promising for
gold jewellery. The import of platinum jewellery into Japan is picking up.
6. US market is buoyant and follows the trend of “more flash for less cash” i.e. US market
only works on price points. It is in this respect Indian jewellery is costly vis-à-vis its
competitors in this market. Thailand is giving stiff competition on the price front in the
US market.
7. Diamonds are the clear front-runners for studded jewellery but other stones are also
becoming popular. Pearls Onyx and Opal are also in demand. Realizing the need that the
main focus of international jewellery manufacturers is on designs and concepts,
companies are investing on new technologies and latest machinery.
8. In the western countries, for the past few years the demand for white gold is picking up.
It is much appreciated in the western countries as well as designers as it sets off
eveningwear. The demand for rings and pendants in white gold increases at the time of
valentine’s day, marriage season and such occasion like mother’s day. Similarly demand
for diamonds studded pendants and ear rings increases during the festival season of
Christmas and New Year.
9. There is increasing tendency by the jewellery exporters to forge joint ventures with
overseas jewellery manufacturers in order to learn about the international designs,
marketing skills, to penetrate into the new markets. For example, Inter Gold has a joint
venture with I Hammar & Sohne. Similarly Diastar Jewellery Ltd. Which is SEEPZ
based has tied up with the US-based Diastar.
10. Emergence of Internet and E-Commerce is widening the jewellery market which was
earlier restricted to “touch and see”.
DEVELOPMENTS — INDIA
As per the latest Gems & Jewellery Export Promotion Council (GJEPC) release, the industry
registered exports worth US$ 15 billion in April-December 2008 (Provisional), compared to
US$ 14.9 billion in the corresponding period of 2007, registering a growth of .59 per cent.
• Further, the total gems and jewellery exports from India stood at US$ 20.8 billion in the
financial year 2007-08, against US$ 17.1 billion in the previous year, witnessing a growth of
22.27 percent. The sector accounted for 13.41 per cent of India's total merchandise exports.
• Out of the total US$ 20.88 billion exports generated by the Indian gems and jewellery
sector, the United States and Hong Kong accounted for the largest import, with a share of 26 per
cent each, followed by UAE at 21 per cent.
• Gold jewellery exports increased from US$ 5.2 billion in 2006-07 to US$ 5.6 billion
2007-08.
• Export of cut and polished diamonds grew from US$ 10.9 billion in 2006-07 to US$ 14.2
billion in 2007-08, witnessing a growth of nearly 68 per cent.
• Export of colored gemstones increased from US$ 246.4 million in 2006-07 to US$
276.42 million in 2007-08.
• The export industry mainly comprises of small-to-large units based in various special
economic zones (SEZs), export processing zones (EPZs) in Chennai and Noida and Santacruz
Electronic Exports Processing Zone (SEEPZ) in Mumbai, supplying primarily diamond-studded
jewellery
Recognizing the potential in the $ 80 billion plus global jewellery markets (out of which India’s
jewellery exports are just a marginal $ 1 billion) Government of India has adopted the following
medium term strategy to promote gold jewellery exports.
Sales 2011- 2012- 2013- 2014- 2015- 2016- 2017- 2018- 2019-
Channel 12 13 14 15 16 17 18 19 20
Exhibitions
Marketing
JVs
Duty Free
Shops
Total
ROUGH DIAMONDS
Major producers of rough diamonds in the world are Russia, South Africa, Australia, Angola,
and Namibia.
Major importers are India, Israel, and Belgium.
Major suppliers of rough diamonds are Cartelized, controlled mainly by De Beers.
9 out of 10 pieces of rough diamonds in the world are processed in India.
Of the world polished diamond market, India has
- Over 55% share in value terms.
- Over 80% share in volume terms.
- 26 million carats.
- 700 million pieces
- India-largest diamond cutting center in the world
India is the world's largest diamond cutting and polishing centre in the world with 11 out of 12
diamonds sold in the global market being processed in the country.
Surat is India's diamond processing hub, contributing over 80 per cent of the country's diamond
processing industry with annual revenue of around US$ 13.03 billion.
Data from Rapa port—the primary source of diamond price and market information—indicated
that during April 2009 to January 2010, India's polished diamond exports were up by 11 per cent
at US$ 13.8 billion from the corresponding period of the previous fiscal, while polished diamond
imports increased 15.5 per cent to US$ 8.5 billion.
"The direct supply of US$ 490 million of rough diamonds from Russia to India is a major step
forward in the democratization of the global diamond industry.
According to Russian diamond-mining giant Alrosa's rough diamond price forecast up to 2018,
rough diamond production is expected to return to 2008 levels (165 MM carats) no earlier than
2015 and, thereafter, to remain at around 165–167 MM carats per year as a result of a limited of
new projects and depletion of existing mines.
Based on the outlook of each of the main diamond jewellery markets, including the United
States, Europe, Asia-Pacific, Japan and the Middle East, the demand is expected to grow by 33
% over the next eight years.
As per the provisional figures revealed by the Gems and Jewellery Export Promotion Council
(GJEPC), imports of rough diamonds at US$ 978.05 million (rupees 4,479.46 crores) in May
2010 have shown a 55.42 percent growth (46.51 percent rupee term) compared with the imports
at US$ 630.02 million (rupees 3,057.48 crores) for May 2009. These imports are a 71.5 percent
increase in volume and 55.2 percent increase in the value of imports compared to May 2009.
Compared to May 2008, India's gross rough diamond imports increased 6.6 percent and net
imports are 3.6% higher.
Out of the total annual $14 billion rough diamond market worldwide, India imports (for re-
export) about $8 billion roughs every year, translating into about 130 million carats a year. It is
about 70 percent supply of all diamonds worldwide.
As per GJEPC's calculation, India's rough diamond imports in 2009-10 (April-March) stood at
$9.03 billion, up from $7.91 billion a year ago. India's 2009 net diamond account improved by
94 percent to negative $83.6 million. India's diamond imports increased to 25 percent in 2009
from 20 percent in 2008 mainly because of cost-competitiveness in small and middle range
jewellery.
India imports more than half of its rough diamonds through Belgium and has strong links with
De Beers, Alrosa and BHP Billiton. Once cut, the bulk of the diamonds are exported back to big
markets such as the US and Hong Kong. Major diamond suppliers like De Beers, Alrosa and Rio
Tinto are focusing their attention on the Indian market that displayed great resilience in the face
of economic hardship. In 2006, DTC supplied rough diamonds worth USD 1.7 billion to India
out of a total of USD 8 billion worth of diamond imports.
Antwerp is the primary supplier of rough diamond to India's massive manufacturing centre.
India's diamond processing industry generates annual revenue of around Rs 60,000-70,000 crore,
80 percent of which comes from Surat-based units. Besides the UAE, the US and Europe,
exporters are exploring new markets like China, Russia, Korea, Brazil and Malaysia.
According to the Investment Commission of India and the industry is expected to have a 65%
share of the global market by 2010. In terms of domestic sales, branded jewellery is likely to
become the fastest growing segment and is expected to witness a growth of 40 percent per
annum to US$~ billion by 2010.
In 2010, retail sales for jewellery is expected to reach US$18.1 billion alone in India and further
expected to reach US$27.5 billion by 2015. Despite the economic slowdown, this sector is
expected to continue to shine in coming years. Rising raw material prices slowed the growth
leaving loss in revenue in their revenue but future of this sector is secure.
MMTC’S MEDIUM TERM PLAN
STRATEGIES
GOLD JEWELLERY
• Promote sale of high quality hall marked branded jewellery through marketing
network of established and recognized jewellery houses.
BULLION
• Widen network of sales outlet (17 at present) & gold vaults further
• Enlarge supply sources for bullion under consignment facility/real time pricing basis
(present limit 11.5 tonnes)
• Focused sale of bullion to industrial users (eg. Silver to photo film manufacturers,
chemical & pharma units, platinum/palladium to auto companies, etc.)
• Expand reach of medallions, standard gold products and ‘Sanch’ brand silverware
through franchised dealers & retail outlets (e.g. state emporium, cottage industry
emporia, etc.)
• Develop sustained & reliable supply sources of rough diamonds for export of
cut/polished diamond as also of studded jewellery.
• Promoting marketing JVs with diamond mining countries encouraging them to open
direct sales outlets in India.
TARGETS-BULLION/ROUGH DIAMONDS
Qty Value Qty Value Qty Value Qty Value Qty Value Qty Value Qty Value Qty Value Qty Value
. . . . . . . . .
Gold
Silver
Platinum
&
Palladium
Rough
Diamonds
Total
TARGETS-SUMMARY
EXPORTS
IMPORTS
DOMESTIC
TOTAL
TURNOVER