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As large firms enter gold recycling business, imports may fall |
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Mumbai: Large firms are jumping into the business of recycling gold, offering professional services in place of jewellery stores and neighbourhood shops, in a move that analysts said could further cut into gold imports.
Indian households hold close to 22,000 tonnes of gold, according the World Gold Council. Of this amount, each year nearly 100 tonnes of gold comes into the market for recycling. Reasons can range from the need for cash to demand for new jewellery.
Currently, much of this recycling happens at jewellery shops where customers swap their old ornaments or at small neighbourhood stores where you can sell your gold for cash, often on unfavourable terms.
Now, spotting a possible business opportunity, firms like the Muthoot Pappachan Group and state-owned MMTC Ltd are entering the market.
On Monday, Muthoot Pappachan opened its maiden gold recycling store, while MMTC via its joint venture with Switzerland-based refiners PAMP SA will open its first store in December.
“Unorganized players employ opaque and non-standard methods in weighing and evaluating the value of gold in the jewellery, which often means the customer has to usually take a cut of 15-20% in the value of the gold,” said Keyur Shah, chief executive officer, precious metals business, Muthoot Pappachan Group.
Under the brand name Muthoot Gold Point, the group’s sole store in Coimbatore will employ high-end instruments to weigh and check the quality of gold by melting the jewellery. The customers will then be offered a reasonable price, linked to the international value of gold at the time, Shah said. If the customer agrees, the gold will be sent to a refiner that the company has tied up with, so that it can be recycled and used further.
The group aims to open 20 more such stores in three to four years, Shah said.
MMTC PAMP, which is a 27:73 joint venture between India’s largest bullion importer MMTC Ltd and Switzerland-based PAMP SA, ran two stores in Delhi last year on an trial basis trying to aggregate scrap gold from retail customers. The company now plans to open a formal store in December and more next year, said Rajesh Khosla, managing director, MMTC PAMP.
“In our experimental stores we used to charge a nominal fee of 1.5% of the value of gold, for assessing and weighing the jewellery and would eventually buy it if the customer wanted to sell it to us. We will stick to the fee when we open the formal store as well,” Khosla said.
MMTC PAMP has recently invested over Rs.200 crore to set up its own refinery near Gurgaon, which will help in refining the scrap gold that is collected.
In the past other institutional players like banks have also tried to enter the gold recycling business with gold deposit schemes, but failed to draw customer interest because banks have a minimum deposit requirement of 500 grams of gold. In addition, these schemes have usually been restricted to temples that want to deposit the gold they receive in donation, said Somasundaram PR, managing director, India, World Gold Council, the market development organisation for the gold industry.
Established players like MMTC PAMP and Muthoot would bring in much-needed transparency in the way scrap gold is sold in India, he said. Additionally, this would help local jewellers reduce their dependence on imported gold.
High imports of gold have proved to be a headache for Indian policymakers because they add to the country’s import bill. Last year, the United Progressive Alliance-led government had introduced a number of restrictions on the way gold was imported into the country, in a bid to reduce India’s current account deficit (CAD), which had touched an all-time high of $88.2 billion in the financial year ended March 2013.
The government had raised the import duty on gold to 10%, while traders were required to export a minimum of 20% of the gold that they imported every year. The steps led to a significant fall in gold imports, which, in the April-June quarter, fell by 57.2% to $7 billion, significantly lower than $16.5 billion in the same period a year ago.
This meant that India’s CAD fell sharply to $7.8 billion during the first quarter, down from $21.8 billion last year. The new government is yet to revise the guidelines.
“Globally, 35-40% of the gold requirement is met by recycling gold, while the remaining is imported. In India, only 8-10% is recycled. We need to increase this and create an alternative source for the gold requirement in the country,” Somasundaram said.
Source : livemint.com
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