What will be the impact of India’s increase in import tariffs on gold and silver jewelry?

From January 22, the Indian government increased the import tariff on gold, silver and precious metal coins used in jewelry making from 11% to 15%, bringing it in line with the tariff on gold and silver bars. In a notification issued on Monday, the Indian Finance Ministry also increased import duties on spent catalysts containing precious metals from 10.1% to 14.35%. A government official said the move was aimed at preventing circumvention of duties imposed on gold and silver bars. Over the past two months, India has discovered gold in a large number of imported varieties, mainly from hooks, clasps and other components used in making jewellery.

According to SMM, India has increased its import tariffs on gold and silver jewelry. According to some market participants, with the increase in tariffs, the prices of gold and silver jewelry-related products will rise. India's move to increase tariffs on gold and silver jewelry to be consistent with gold and silver bars is also to prevent tax evasion and thus protect the healthy development of related industries.

It is reported that adjusting tariffs is regarded by India as one of the important means to control illegal transportation. As early as the end of 2022, according to Bloomberg news on December 5, 2022: India’s Ministry of Trade is discussing reducing gold import taxes to control illegal transportation. India, the world's second largest consumer of precious metals, purchases almost all its purchases from abroad. Now it requires the Ministry of Finance to consider reducing tariffs from 12.5% to about 10%.

According to data from the World Silver Association, the current global silver resource reserves can reach 530,000 tons, of which resources are mainly concentrated in 7 countries including Peru, Poland, Australia, China, Mexico, Chile, and the United States, accounting for 74% of the global total. The concentration is very high. China's silver resources are widely distributed, with 41,000 tons of silver reserves, accounting for about 8%, ranking fifth in the world. From the perspective of demand structure, silver demand is mainly divided into three parts: industrial manufacturing, jewelry and silverware, and physical investment. Industrial demand accounts for more than 50% of the total demand, and physical investment demand (silver coins, silver bars, etc.) accounts for about 27%. And the demand for jewelry and silverware accounts for about 23%.

Gold: The World Gold Council had previously predicted that India's gold demand in 2023 may fall to 700 tons from 774.1 tons a year ago, a 10% drop to the lowest in three years, as record high prices suppress retail purchases. As the world's second-largest gold consumer, reduced purchases in India may limit gains in global gold prices. Lower import demand for gold may also help narrow India's trade deficit and support the rupee. Somasundaram PR, regional chief executive of the World Gold Council's India business, said: "We remain cautious on gold demand in India as it faces uncertainty from rising local prices and slowing discretionary spending." From April to June this year, gold consumption in India fell 7% to 158.1 tons as local gold prices rose, leading to lower jewelry and investment demand. During the quarter, gold prices in India hit a record high of Rs 61,845 per 10 grams. However, according to Reuters, the Bank of India purchased 123 tons of gold in October 2023, a year-on-year increase of 60%, and gold imports rose to a 31-month high.

Silver: India is currently the third largest physical silver investment market in the world. Due to the rise in jewelry consumption, the country's silver imports are expected to reach a record high of 8,000 tons in 2022. In 2023, its imports will decline. India's silver imports will remain low in 2023, with total imports as of November 2023 reaching 3,337 tons, a year-on-year decrease of 65%.

The "World Silver Survey 2023" disclosed by the World Silver Association shows that in 2022, the amount of silver used in the world's silver jewelry will increase by 29% year-on-year to 7,280 tons. India, as an important growth driver, contributed almost all of the increase that year. As India's silver jewelry demand reaches its peak in 2022, global silver jewelry demand is expected to fall from its high point in 2023, with an overall year-on-year decrease of 15%; while silver jewelry demand in other countries except India will continue to rise moderately, with an estimated growth rate of around 4%. Divided by region, the top four regions for global silver consumption in 2022 were South Asia, East Asia, Europe and North America, accounting for 49.2%, 21.6%, 13.7% and 8.0% of the global total respectively. In South Asia, India accounted for 97% of production capacity and most of the consumer market. In 2022, the amount of silver used in Indian silver jewelry reached a historical high of 3,472 tons, almost doubling year-on-year and 83% higher than the average from 2017 to 2021. It became the main driving force for the growth of global silver used in silver jewelry that year. Specifically, the growth came from the following factors: (1) The economic recovery momentum was good, and industry inventories were replenished after remaining at low levels for two years; (2) Control was fully liberalized, and offline consumption scenarios resumed to release previously suppressed consumer demand; (3) The market share of brand enterprises increased, increasing the distribution volume of silver jewelry and increasing the penetration rate of 925 silver in the local market; (4) The rapid growth of the silver gold-plated jewelry market. In 2023, with the industry's inventory rebuilding coming to an end and the negative impact of climate on the country's agricultural output, the amount of silver used in Indian silver jewelry is expected to return to normal levels, falling 35% year-on-year to 2,257 tons.

After reading the precious metal consumption situation in India, let’s take a look at the import and export situation of silver and gold in China, an important precious metal consumer.

According to data from the People's Bank of China, China's gold reserves stood at 71.87 million ounces at the end of December, an increase of 290,000 ounces from the previous month, the 14th consecutive month of increasing gold reserves. Since restarting its holdings in November 2022, the central bank has accumulated a total of 9.23 million ounces of gold.

In addition, according to the "World Silver Survey 2023" disclosed by the World Silver Association: In East Asia, China's silver consumption in 2022 dropped by 18% year-on-year, and the consumption situation in the annual tourism market and key holidays was not optimistic. In terms of channels, the online and offline channels of silver jewelry further differentiated, and offline retail stores continued to shrink; in terms of products, traditional style bracelets such as ancient French silver and 925 fashion silver jewelry inlaid with materials such as pearls and zircons performed relatively well. At the beginning of 2023, China's consumer market showed a trend of comprehensive recovery. However, as consumers focused more on gold products, the amount of silver used in silver jewelry was expected to increase by 10% year-on-year, but there was still an 18% gap compared with 2019.

In 2023, China's #1 silver output was 16,266.47 tons and silver exports was 4,066.083,428 tons.

According to SMM statistics, China's #1 silver output in 2023 was 16,266.47 tons, a year-on-year increase of 7.7%. The output of silver ingots mainly came from smelters mainly engaged in lead-associated silver smelting, accounting for 43.6% of the total. The output increased by 1066.249 tons year-on-year, a year-on-year increase of 17.6%, and the year-on-year increase accounted for 2.3%; the output of silver ingots from smelters engaging in copper-associated silver smelting was 4420.417 tons, accounting for 27%. The output increased by 441.532 tons or 11.1% year-on-year, and the year-on-year decrease was down 3.6%; the output of silver ingots from other sources except mine associated was 3152.75 tons, accounting for 19.3%, the output increased by 447.26 tons or 16.5% year-on-year, and the year-on-year growth rate was 1.6%.

At present, most of China's silver output is exported. Hong Kong, India, Thailand, Singapore and Australia are the main regions for the export and re-export of China’s silver. According to data from the General Administration of Customs compiled by SMM, from January to December 2023, China's silver export data was 4066.083428 tons.

Institutional voice

JP Morgan commodities analyst Gregory Shearer said that gold will continue to remain above US$2,000 per ounce this year, and the precious metal will benefit from further interest rate cuts and a rebound in investment demand. The Federal Reserve raised the rate cut rate to 125 basis points and emphasized that fund managers have begun to take action. JPMorgan insists its only structurally bullish views are on gold and silver, but precious metals markets are expected to lose some of the extra boost from higher inflation. Gregory explained: “ Across all metals, we have the highest confidence in our medium-term bullish forecasts for gold and silver in the first half of 2024-2025. Currently, gold still appears to be quite rich relative to base rates and FX fundamentals, and with Fed rate cut expectations now ahead of our forecasts, gold still looks vulnerable to another minor pullback in the near term. "

MetalsFocus recently released its 2024 precious metals market outlook. MetalsFocus said that gold prices rose unusually strongly in late 2023, but are expected to moderately fall back in the first half of 2024 as major central banks will keep interest rates stable for a longer period than the current market consensus. Nonetheless, the downside for gold prices will be limited and will not last long. Once the interest rate cutting cycle begins (most likely from mid-2024), gold prices are expected to receive a strong boost in the second half of the year. In addition, MetalsFocus predicts that the price of silver will roughly follow the price of gold in 2024; as far as platinum group metals are concerned, the price of platinum will continue to maintain a range-bound trend in 2024, with the fluctuation range similar to that in 2023. In contrast, palladium and rhodium prices are likely to remain under pressure.

A CITIC Securities research report pointed out that the development of the metal industry market in 2024 is expected to show the following characteristics: 1) The dominance of liquidity will continue, which will benefit the prices of precious metals and copper products; 2) Domestic stabilizing growth policies will promote domestic growth, overseas inventory replenishment, and supply disturbances will intensify or drive The restoration of the supply and demand pattern of industrial metals will help sectors such as steel and aluminum bottom out and rebound; 3) Battery-related metals will absorb the risk of high prices and are expected to rebound partially as the overall industrial chain recovers; 4) Metal materials related to automobiles, consumer electronics, AI, and hydrogen energy, nuclear energy and other directions and processing are expected to continue to be popular.