
The pandemic-induced lockdown due to Covid-19 brought along its fair share of challenges for every sector of business including gold refiners. According to World Gold Council, India suffered a major setback in terms of demand for gold this year. Also, the lockdown disrupted the supply of the major inputs, viz., gold dore bars and scrap gold creating a disruption in the gold refining industry. Gold dore bar, is a semi-pure alloy which is refined for further purification, is imported and used as the main input for the domestic gold refinery industry in India. Refined gold bars are manufactured from gold dore bar. Scrap gold refers to gold of any value in its original marketed form—for example, broken jewellery or industrial by-products. This scrap gold is often sent to a refinery, in order to be melted down and recycled to manufacture something else. Supply disruptions of these in outs during the pandemic led to some refiners even stopping their operations completely.
In spite of Indian households possessing tonnes of gold as stock, the gold refinery industry has not flourished much in the past. It is interesting to note that there are certain trends and challenges in the refining industry, from the perspective of the refiners themselves, that helps us draw a few inferences or conclusions about the industry. A survey was conducted among fourteen gold refineries across India. This survey focused on seven different aspects related to the operation of the organised gold refining industry, viz. distribution of firm size, inputs used and problems in their procurement, refiners’ products and demand, quality of the product, capacity utilization, government subsidy in improving productivity and the treatment of sludge gold obtained.
The features of the industry include wide variation in the refining capacity across firms. They vary widely in terms of business practices and their views about a number of policy issues. Interestingly, there exists varied business practices across various regions in India and the same also depends on the size of the gold refining firms who are also into bullion trading or into gold jewellery business. These differences among firms in terms of practices stem from three factors: sourcing of the main input of gold, different gold consumption pattern in different parts of the country and different process of sludge treatment. For instance, while in the South India gold scraps are used as the main source of input, in the north the main input is imported dore bars. Similarly, in Western India, the refiners use both scraps and imported dore as inputs. Also, while in south, gold jewelry is more frequently utilised for financing other purchases, the rest of India views gold jewelry as a last resort of overcoming distress. On the other hand, the difference in business practice according to firm size arises from import of dore. While the large refiners do not face much difficulty, small refiners are not in a position to follow responsible sourcing on their own while importing dore from mines abroad.
It may be noted here that certain measures can be taken to boost the growth of the sector in such difficult times. For example, intervention of government authorities in sourcing dore from abroad is going to help small refiners in avoiding disruption in production and managing payments for imports. Secondly, Gold Monetisation schemes may also help in reducing supply disruptions. Exports in the area of gold bars may be considered by the government thus expanding the market for Indian gold refiners. Certification regarding the purity of gold is another important issue. Along with government intervention in sourcing dore, measures like establishment of India Gold Delivery Standard in solving the trust issue in ensuring quality of gold may lead the domestic gold refining industry to flourish in future. Imposition of mandatory hallmarking in January 2021 is another step forward in this regard.
The article is authored by Professor Paramita Mukherjee, IMI Kolkata and others and published in MCX Commodity Insights Yearbook 2020.