Chinese gold consumption: Far higher than most analysts and media tell us

Edited version of article which first appeared on news.sharpspixley.com on Feb 15th

Once again we are indebted to Koos Jansen for crunching the numbers on China’s gold imports in 2016.  He has added together direct imports to mainland China from the following nations/areas which publish detailed export statistics – namely Hong Kong (771 tonnes), Switzerland (442 tonnes), Australia (53 tonnes up until September – October to December figures not yet available) and the UK (only 15 tonnes, although most UK gold exports to China now seem to be being routed via Switzerland where the refiners take good delivery gold bars from the UK and re-refine them to the sizes and purities demanded in the East).  Jansen sees little more going directly into mainland China from other sources and allowing for around 20 tonnes going in from Australia for the final quarter of the year comes up with a grand total of Chinese gold imports at approximately 1,300 tonnes. (See: CHINA Net Imported 1,300t Of Gold In 2016)

In addition – the USA will have exported around 4.5 tonnes direct to the Chinese mainland, and Jansen also comments that South Africa doesn’t break down its gold export figures so he may well suspect that some is going in from there too – but the amounts will be relatively small so we can stick to 1,300 tonnes as a nice round figure.

Add to that China’s own gold output, estimated by Jansen at 453 tonnes and there will also have been a scrap gold element to be taken into account.  This suggests that China ‘consumed’ around 2,000 tonnes of gold in 2016, which equates quite closely to the Shanghai Gold Exchange (SGE) gold withdrawals figure for the year of 1,970 tonnes – (See: 2016 SGE gold withdrawals lowest for four years).  This would seem to confirm Jansen’s oft-made assertion that SGE gold withdrawals are equivalent to total Chinese gold demand – a premise largely dismissed (perhaps without any adequate reason) by the major gold consultancies which virtually all put Chinese demand at less than 1,000 tonnes.

In part, this discrepancy relates to what the major consultancies label as ‘demand’.  They tend to ignore what Jansen labels as institutional demand which he puts at at least 778 tonnes plus, depending on the amount of supply from scrap sources.

In terms of Chinese gold flows though, all the above figures ignore Chinese central bank demand.  While this, at least in terms of reported additions to its gold reserves, appears to have slipped in 2016, it still came to a little over 80 tonnes – so overall gold flows for China last year look to have been in excess of the 2,000 tonnes noted above, although not by much.  This equates to 60% plus of the total of global new mined gold in 2016.

One other point from the latest statistics is the continuing reduction of the proportion of gold flows into the Chinese mainland via Hong Kong.  Too often we still see media headlines suggesting Chinese gold demand has risen, or fallen, purely based on the stats coming out of Hong Kong.  Based on the gold import figures alone, Hong Kong now accounts for less than 60% of the gold going into mainland China.  Thus the Hong Kong figures can no longer be considered a proxy for total Chinese gold imports.  As Jansen points out in his article:

Most likely Hong Kong’s position as the largest gold exporter to China will slowly fade in the coming years, as the State Council is stimulating gold freight to go directly to Chinese cities (hoping the Shanghai International Gold Exchange will eventually overtake Hong Kong’s role as the primary gold hub in the region). Consequently, gold exports to China are increasingly bypassing Hong Kong.  In December 2016 we got a preview of what is about to come: Switzerland net exported an astonishing 158 tonnes directly to China, up 418 % from November 2016, up 168 % from December 2015, and 106 tonnes more than Hong Kong did.”

See our own take on the Swiss December figures: China 154, Hong Kong 39.  Swiss Dec gold exports show remarkable gold flows.  We have long been pointing out the decline in importance of exports from Hong Kong to the mainland in the overall Chinese gold import figures.  Perhaps our message will eventually get through to much of the mainstream media – and some ‘expert’ commentators and analysts – who continue to ignore this point and continue with headlines which appear to collate Chinese total gold imports with those coming in from its Special Administrative Region!

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More anomalous gold data in latest Swiss import/export figures

The latest gold import and export data from Switzerland, one of the few countries to report these flows in detail, as usual open up some interesting insights into global supply and demand.  Overall Swiss gold exports rose by around 20% month on month to 177.3 tonnes making the country a net exporter in May.  Generally Swiss gold imports and exports are pretty much in balance given that it mostly imports gold for re-refining and re-export.

While gold exports from Switzerland to China and Hong Kong both picked up in May, its principal country of imports was again the United Arab Emirates normally a recipient of Swiss gold, not a provider.  Indeed in another reversal of normal gold flows, the U.K. was again the biggest importer of Swiss gold in May, necessary, we feel, to meet the big demand in London from the principal gold ETFs which vault their gold there.  Exports to the U.S. were also unusually high.  Again any gold flows to and from the U.S are normally in the eastward direction.  We have surmised before that available supplies of physical gold in London are currently tight and this only serves to add weight to that premise and could also suggest that a similar position is arriving in the U.S. too given recent strong investor demand for bullion.

Re China and Hong Kong, exports to the Chinese mainland were 19 tonnes, up from 13.8 tonnes in April, while exports to Hong Kong were up by a very large 14.5 tonnes to 24 tonnes making the percentage of gold shipped to the Chinese mainland against that shipped directly to Hong Kong (which will also subsequently nearly all find its way to mainland China) at around 44%.  This again confirms our oft-repeated mantra that Hong Kong gold imports and exports can no longer be taken as a proxy for the Chinese figures with so much gold now going to the Chinese mainland directly.  This is a major change from three years ago when the Hong Kong:China ratio was far higher, but still some media outlets ignore this fact.

Prior to the current year, The U.K. was always a significant supplier of gold to the Swiss refineries which have specialised in melting down and re-refining 400 kg good delivery gold bars into the smaller sizes most in demand in the Asian markets.  Thus, as we pointed out a month ago when the previous set of Swiss stats were released – See: Swiss gold data raises new doubts on London’s gold stocks these reversals of gold flows, if they continue, could be an indicator of some serious tightness in supply of physical gold to the markets from traditional sources as noted above.

While exports to China and Hong Kong were substantially higher in May, they remained very weak to that other traditional gold market, India, where gold seems to have fallen out of favour in recent months.  In May the figure was only 18.5 tonnes, down 16% from an already low April figure.  Taken together with reports of substantial discounts in the local gold price, it appears that Indian buyers are nervous of the substantial gold price rise so far this year and may be holding off purchases in expectation of a price fall.

The other big anomaly in the figures was that the two biggest exporters of gold to Switzerland in May were the United Arab Emirates again with 42.1 tonnes and Hong Kong with 11.6 tonnes although the latter was a net importer in May – not the case in April.  Neither of these countries/regions are normally exporters of gold to Switzerland in any significant quantities, but are major trading centres, suggesting that the lower demand from what are probably their biggest normal export markets, India and China respectively has led to inventories running higher than traders are happy with, and with the higher prices prevailing there has been perhaps an incentive to return gold to the Swiss refiners and take profits.

We will thus be following this Swiss import/export data to see if these supply/demand anomalies continue in future months.

60% of Swiss gold exports to China this year going direct rather than via Hong Kong

A follow-up article to the one I published here recently on Switzerland nowadays shipping more gold to mainland China than to Hong Kong has been published on sharpspixley.com.  The original article related to Swiss gold export figures for January showing the highly significant fact that the country shipped 42.1 tonnes of gold to mainland China and only 24.5 tonnes to Hong Kong.  Now Switzerland has released its February gold export statistics showing that again more gold went directly to mainland China than to Hong Kong (26.0 tonnes to 19.4 tonnes)  This works out That 60% of Swiss gold exports in the first two months of the year went directly into mainland China, bypassing Hong Kong altogether.

Go back around three years and nearly all China’s imported gold went to Hong Kong first and then to the Chinese mainland, so Hong Kong gold exports to China were taken by the media and major gold analysts as representative of total Chines gold imports.  This is obviously no longer the case with perhaps more than half Chinese gold imports not touching Hong Kong at all – yet some media still publish the figures as though a sharp year on year fall in Hong Kong gold exports to the mainland indicates a similarly sharp fall in total Chinese gold imports.  As the Swiss figures show this is no longer the case.

To read the Sharps Pixley article click on China taking in more Swiss gold than Hong Kong for second successive month

Switzerland January gold exports:  Mainland China much higher than Hong Kong

The latest announcement on Swiss gold exports – for January – showed that for that month the small European nation, which provides a significant percentage of Asian physical gold demand from its refineries, exported far more gold to Mainland China than to Hong Kong.  42.1 tonnes as compared with 21.5 tonnes.  A chart from Nick Laird’s Sharelynx.com site detailing the latest gold export figures is shown below.

swissexp

So why is this significant?  For many years the vast majority of gold flowing to mainland China was imported first into Hong Kong and then to the mainland.  So much so that Hong Kong gold exports into the Chinese mainland were taken by much of the world’s media and analytical consultancies as being a proxy for total Chinese gold imports.  For the past few years, though, things have changed substantially with much more gold being imported directly, bypassing Hong Kong altogether.  Yet still media headlines trumpet falls and rises in the Hong Kong to China export figures as though these are still a proxy for total mainland China gold imports.  As the latest Swiss export figures show, this is most definitely no longer the case.

Hong Kong still remains an important conduit for gold imports to the Chinese mainland but its significance seems to be diminishing year on year which readers should bear in mind the next time a headline blares a fall in Hong Kong exports to China with the implication that this means that Chinese demand is falling accordingly.

Another interesting point from these Swiss figures is that over 90% of Swiss gold exports are flowing to Middle Eastern and Asian nations.  Switzerland’s own gold imports come in primarily from the UK – still the world’s major gold centre.  It flows via Switzerland for London good delivery gold bars to be re-refined and recast by the dominant Swiss gold refiners into the smaller bars and wafers which are mostly traded in the Middle East and Asia.

In January, Switzerland imported 166.9 tonnes of physical gold of which that from the UK totalled 61 tonnes – or 36.5%.  Interestingly the second largest source of gold flowing into Switzerland was from  Venezuela at 35.7 tonnes, thus confirming earlier reports that Venezuela, having only recently repatriated its gold to hold it within the nation, was now shipping significant quantities to Switzerland.  This is thought to be being used to mitigate its precarious debt position in a series of gold swap agreements via The Bank for International Settlements.

Another 46.6 t delivered from SGE. A massive 2165t withdrawn YTD

While the frenetic pace of the gold deliveries out of the Shanghai Gold Exchange has slowed a little following the Golden Week holiday last month, they are still continuing at a weekly rate which, if continued for the rest of the year, will bring total withdrawals for the full year to over 2,600 tonnes – a massive amount and comfortably in excess of the 2013 record of 2,181 tonnes. Indeed the 2013 total will almost certainly already have been exceeded this past week  – a full eight weeks before the year-end – with these figures to be announced next Friday.

We think that 2,600 tonne plus estimate above will actually be exceeded as, historically, Chinese demand tends to pick up again as the Chinese New Year – with  its associated gift giving – approaches as jewellers and other fabricators stock up to meet anticipated demand.

Latest gold export figures from Hong Kong to mainland China are also running strong with a net 97.242 tonnes delivered to the mainland by this route in September.  Hong Kong remains almost certainly the biggest conduit for Chinese mainland gold imports, but is no longer so dominant that flows via this route can be taken as a proxy for total Chinese demand – but certainly still remain a significant indicator. (See: August UK gold exports direct to mainland China dwarf Hong Kong)

Interestingly even the mainstream analysts, who seem to downplay Chinese demand figures, do seem to be coming round to the recognition that Chinese retail demand is again picking up.  We are pretty sure they will end the year confirming that China remains the world’s biggest gold consumer again thus beating demand from India, which itself also seems to have been picking up again this year.  Whether this will be adversely affected by Prime Minister Modi’s gold monetization schemes remains to be seen, but we suspect that any effect will be insignificant – at least initially.

New Hong Kong gold exports support record high China demand forecast

Hong Kong exported 97.42 tonnes of gold to the Chinese mainland in September – yet another indicator that Chinese gold demand is not only alive and well – but heading for yet another new record.  Taken together with SGE withdrawals so far this year of comfortably over 2,000 tonnes already this year and annual domestic gold production of perhaps around 480 tonnes, the amount of gold disappearing into Chinese maws remains immense.

To read my latest views on the supporting data on the Sharps Pixley website, Click here

 

 

 

 

Hong Kong gold exports ever less relevant to Chinese SGE demand

An interesting graphic from Nick Laird’s www.sharelynx.com group of websites.  This one shows net monthly Hong Kong gold exports to China, Shanghai Gold Exchange (SGE) withdrawals and the correlation between the two.  This is hugely relevant in the context of how significant the Hong Kong net gold export figures are in relation to overall Chinese demand as represented by SGE withdrawals.

hksge

What can be seen from the charts was that there was a much more significant correlation between the Hong Kong exports and SGE withdrawals up to Q1 2014, but after that the Hong Kong percentage has been mostly declining and was down to only 23% for the latest month for which figures are available (August).  June and July figures were even lower.   This shows that Hong Kong gold export figures are very definitely no longer the proxy for Chinese gold demand they used to be despite some analysts, and the media, assuming, or implying, that they are.

The reason for this is that Hong Kong is becoming less and less important as a supply route for gold into mainland China due to gold import regulation changes.  We have already pointed out that two of the biggest supply routes for gold into China – via Switzerland and the UK – are now shipping very significant percentages to the Chinese mainland directly, whereas prior to 2014 nearly all their gold export traffic was via Hong Kong.  (See: What is China’s real gold demand?).

We can glean these statistics directly from the Swiss and UK export figures as China publishes no direct data on gold imports to the mainland.  Whereas some gold was always going direct to the mainland and bypassing Hong Kong, a relaxation on which ports of entry and who could import gold directly has significantly moved the goalposts and undoubtedly some sources of Chinese gold imports may be moving 100% of their gold directly into the Chinese mainland as opposed to the circa 40% we are already seeing  across the major import routes from countries which do publish the relevant data.

Of course the other significant source of Chinese gold is from that mined on the mainland itself, and as a byproduct from the big base metals smelting and refining sector- possibly as much as 480 tonnes this year, up from around 460 tonnes in 2014.  This comes to around 20% of China’s likely 2015 total gold demand.

Update: 44% of June Swiss gold exports to China bypassed Hong Kong

The importance of Hong Kong as a channel for Chinese gold imports continues to diminish with nearly half of Swiss June gold exports going direct to the mainland.

As we have noted here before, there has been an increasing trend for China to import gold directly via its mainland ports of entry rather than via Hong Kong, which makes Hong Kong to China gold export data less and less relevant.  So headlines like the recent one from Bloomberg: China’s gold buying from HK drops to lowest in a year  and the accompanying ‘analysis’, which puts it all down to lack of mainland China demand, have to be seen in context and as potentially misleading.  Firstly June is normally a low month for gold trade in the area, but even so the sentiments expressed in the accompanying article seem to be countered by Shanghai Gold Exchange withdrawal figures.  These arerunning exceptionally high for the time of year with 69 tonnes withdrawn from the SGE in the latest week for which stats are available at a time of year when we might normally expect to see withdrawals of 20-30 tonnes – See: What to make of gold

One of the biggest exporters of gold to Hong Kong and China is Switzerland, and luckily we have official Swiss statistics to throw a little more light on this subject.  In June total Swiss gold exports totalled just under 100 tonnes with 32.3 tonnes going to China and Hong Kong combined. But of this total fully 43.6% went direct to the Chinese mainland, bypassing Hong Kong altogether which makes the Hong Kong export figures to China less and less indicative of overall Chinese gold imports.  Indeed for the whole of 2014 around 37% of Swiss gold exports to China and Hong Kong – which together amounted to 600.3 tonnes – went directly to the Chinese mainland without first landing in Hong Kong.  It is perhaps fair to assume that gold exports to mainland China from other nations is also seeing an increase.

Here’s the www.sharelynx.com chart showing the major country-by country breakdown of Swiss gold exports for June: (apologies – the chart somehow didn’t appear when article first posted)

swissgold

As can be seen from the above chart, India, Hong Kong and China between them accounted for 54% of total Swiss gold exports, and if one adds in other south Asian and east Asian nations the area accounted for around 65% of all Swiss gold exports that month.

How much gold is now going directly to mainland China? 36%?

By far the largest exporter of gold to China and to Hong Kong is Switzerland and its latest figures for 2014 suggest that 36% of Swiss gold exports are now going to mainland China directly

Lawrie Williams

Latest precious metals export data out of Switzerland for the full 2014 year suggest that in that year, taking gold specific exports only, around 36% of the gold exported to Hong Kong and China  combined actually went directly into China rather than via the former British Crown Colony.  As various reports in the media have suggested, India was the biggest recipient of Swiss gold at 471.2 tonnes, but China and Hong Kong, which after all is a special administrative region of China, together took in 590.4 tonnes, further suggesting China, contrary to some reports, remained the world’s biggest gold consumer last year..

Totals Swiss gold exports for the year were some 1,746 tonnes and the top 10 importers of Swiss gold in 2014 are set out in the table below.  Between them they account for over almost 90% of all Swiss gold exports.  The next three most significant importers of Swiss re-refined gold were France with 37 tonnes, the UK with 29.8 tonnes and Malaysia with 22.6 tonnes.

Table: Top 10 recipients of Swiss gold exports

Country Tonnes imported % of Swiss Gold exports
1.       India 471.2 27.0
2.       Hong Kong 377.2 21.6
3.       China (Mainland) 213.1 12.2
4.       Singapore 134.2 7.7
5.       Germany 88.9 5.1
6.       Turkey 69.1 4.0
7.       United Arab Emirates 66.3 3.8
8.       Saudi Arabia 60.5 3.5
9.       Thailand 44.4 2.5
10.   Italy 43.6 2.5

Source: Swiss Federal Administration

So what is the significance of this?  For many years very little gold was imported directly to mainland China.  Nearly all came in via Hong Kong.  So Hong Kong (which published its gold import/export data) was widely seen as a proxy for total Chinese gold imports.  China itself didn’t publish such data so what might have been coming in directly was widely disregarded by Western analysts as of no consequence.

But last year, China moved the goalposts, and eased the path of gold imports directly to the mainland from other countries than Hong Kong.  However because China doesn’t publish direct gold import data no-one really knows exactly how much gold is now flowing into China directly and although Hong Kong is now not the only significant import route Western mainstream media often imply the Hong Kong data still equates to Chinese demand – so the recent news that exports from Hong Kong to China fell 32% last year was widely seen as an indicator that Chinese consumption fell by a similar amount.

Thus the latest official export data from Switzerland (as do the latest figures for U.S. gold exports) show that for a large part at least of China’s gold imports, around a third are now going into China directly which makes the Hong Kong figures ever less indicative of the overall picture.

The other interesting point from the Swiss statistics is that this small nation takes in, re-refines and then exports a volume of gold equivalent to around 56% of the world’s newly mined annual gold supply.  The volumes of gold being exported to other countries than India and China/Hong Kong are also worthy of note – particularly imports into Singapore and Thailand being other key Asian gold consumers – and Saudi Arabia, Turkey and the United Arab Emirates, which between them accounted for  as being strong indicators of Middle Eastern demand.  Between them these three states imported 195 tonnes of Swiss re-refined gold – some of which was doubtless destined for Iran and Islamic State, both of which are cut off from direct gold supplies from normal sources.  Gold exports and imports can be a murky business at the extremes!

36% of October U.S. gold exports to China went direct rather than via Hong Kong

Latest statistics from the USGS make for interesting reading – not just because they show U.S. gold output has been continuing to fall – it’s down 7.4% year on year to date – but for the country by country export data.  We have been commenting on Mineweb.com for much of the past year that imports to mainland China via Hong Kong remain significant, but by no means as significant as in the past.  We have come up with this viewpoint through extrapolation of Chinese Shanghai Gold Exchange data  which has been high – particularly in the  final quarter of the year – even while net gold imports from Hong Kong have slipped sharply.  Thats an anomaly that is hard to explain unless substantial gold imports are coming in by other routes.

But I’ve just received some interesting statistical data from the USGS which shows that a substantial proportion of U.S. gold exports to Hong Kong and China in October went directly to the mainland.  Further checking reveals that this was also the case in September, although not before.  The October figures were 12.9 tonnes to Hong Kong and 7.4 tonnes directly to the mainland – or 36% of the total.  By contrast, in October 2013, only 0.36 tonnes were shipped direct to the mainland and 17.8 tonnes to Hong Kong.  A very substantial change indeed.  These latest figures tie in remarkably well with our opinions on the breakdown of Chinese gold imports and that while Hong Kong remains a significant import route, it is not nearly so important in the overall picture as it used to be.

I have commented recently (yesterday) in an article on Mineweb on the continuing emphasis by mainstream media on the Hong Kong to China export figures which taken at face value would seem to present a misleading picture.  Do click on How significant was the 32% fall in Hong Kong exports to China  to read this article in full.  A second more detailed article on the U.S. October mine production and export data is also now up on Mineweb.  Click on U.S. 10-month gold mine output falls 7% y-on-y to read.

Big Chinese gold import figure from Hong Kong in November

Big Chinese gold import figure from Hong Kong in November

By Lawrence Williams

While the Hong Kong gold export figures may no longer provide such a good proxy for the level of Chinese gold imports as in days past, given the apparent rise in imports through Shanghai and Beijing (which are not imported) the Hong Kong figures do provide an important indicator to what is going on in terms of Chinese gold consumption.  We still consider the weekly Shanghai Gold Exchange (SGE) withdrawals figure as the most significant statistic in this respect for overall demand but the Hong Kong figure (the continuation of statistical data set up under the old British Administration) does provide an indicator of gold import flows into China.

Thus the latest figure to emanate from Hong Kong do support much of our other data which show that China’s gold imports (and consumption) have been picking up strongly in the latter part of the year as the Chinese New Year approaches.  Figures released by the Hong Kong Census and Statistics Department show that net gold exports to mainland China via this route totalled 99.11 tonnes – the highest level for nine months, following a strong month in October too when a net 77.6 tonnes were imported into mainland China through the former British Crown Colony.

Chinese gold demand tends to pick up in the runup to the Chinese New Year celebrations, which next year falls at one of the latest possible dates on February 19th.  With the strong figures seen through the SGE, and now Hong Kong we could be looking at a very strong December, January and February period for gold imports into mainland China and total gold consumption there.  See: Chinese gold demand already over 2,000 tonnes in 2014

The Chinese also tend to be price sensitive in their buying patterns and low gold prices may also be stimulating demand both from consumers directly, and fabricators and traders looking to build up stocks ahead of the New Year celebrations.

Recently we noted here that Chinese gold demand as represented by withdrawals from the SGE had already reached over 2,000 tonnes and was heading towards a year-end total of probably just under 2,100 tonnes – getting close to 2013’s 2,181 tonne record.  It looks like Chinese demand, which on a fundamental supply/demand basis should in theory be the key factor in driving up the gold price, seems to be as strong as ever.  However as we noted here in our article on silver, also posted today that, increasingly, real supply/demand fundamentals are being superseded by manipulative trading on the futures exchanges in setting gold price, and silver price, levels.  But even so, this incessant flow of gold from weaker hands in the West to strong hands in the East is certain, one day, to have a positive impact on price, but when that day will come is hard to predict.