The Shanghai Gold Exchange deliveries dilemma

We were hoping for some clarification on the latest reporting of Shanghai Gold Exchange(SGE) gold deliveries in today’s SGE gold data report for week 2 given the seemingly massive figures being reported so far this year and this has not been forthcoming.  The announced figures so far this year are so far in advance of anything we have seen beforehand that the natural conclusion is that the goalposts have been moved and this year’s figures can not be compared with last year’s.

For example, the average weekly withdrawals figure from the exchange – the literal translation of the category headline as reported by the SGE is ‘deliveries’  – was around 50 tonnes in 2015.  So far this year the reports out of the SGE for weeks 1 and 2, using exactly the same heading in the released table – 本周交割量 – as for last year’s released tables of deliveries, have been 238.2 tonnes in week 1 and 247.2 tonnes in week 2 giving an apparent  total for the year to date of 485.5 tonnes.  (However there has presumably been a small unannounced adjustment for week 1 as the cumulative total (累计交割量 )  reported by the SGE with the week 2 figures was actually 491.2 tonnes.)  These are so much larger than last year’s figures that we are now pretty certain that although the descriptive headline in the tabulated announcement is exactly the same as for last year, the new figures relate to a different statistical make-up.

Koos Jansen, as always, writing on http://www.bullionstar.com , has come up with an explanation for the huge differences between this year’s and last year’s statistics .  He draws our attention to an announcement by the SGE dated January 16th (in English) which states:

With a view to distributing market data regarding physical deliveries in a more comprehensively way and helping market participants interpret delivery-related data and reports more accurately, the Shanghai Gold Exchange (the “Exchange”) has adjusted some terms in the Delivery Reports which are included in Market Data Weekly Reports and Market Data Monthly Reports. The adjustments shall be effective as of Jan. 1st 2016 and are clarified as follows:

        1.The term “delivery amount” refers to the sum of the trading volume of physical products and the contract delivery volume of deferred products. The term “delivery ratio” refers to the proportion of delivery amount to the total trading volume of both physical and deferred contracts.

        2.The term “load-out volume” refers to the total volume of standard physical bullions withdrawn from SGE-certified vaults by members and customers.

        3.The terms “accumulative delivery amount”, “accumulative trading volume” and “accumulative load-out volume” respectively refer to the sum of delivery amount, trading volume and load-out volume from the beginning of the year to the statistical time point. The term “accumulative delivery ratio” refers to the proportion of accumulative delivery amount to the accumulative trading volume.

        4.Delivery-related data of silver products are added into the reports.

To an extent, this only serves to confuse.  According to Jansen – perhaps the foremost expert on things SGE – the old reported withdrawals figure to compare like-with-like would be the “load-out volumenoted as item 2. in the SGE announcement.  Unfortunately this is not one of the figures released by the SGE in its new weekly statistical presentations.

So, for the moment, all that we can glean from the SGE figures is that total volume through the Exchange remains very high and those for week 2 were a little higher than for week 1, but the amounts which relate to the old SGE withdrawals figure would seem to remain obscured within the new, supposedly improved, SGE data announcements.

For Koos Jansen’s full explanation of how he sees the latest SGE presentation of its statistics click on: Are SGE Withdrawals Gone?

Advertisements

An answer to the hugely anomalous 2016 Week 1 SGE Gold Delivery figure.

Inability to read Chinese and to understand the nuances of a title change may well have caused us to publish a potentially misleading note about the latest SGE gold announcements and we are indebted to China follower Koos Jansen for an answer to the question posed in our most recent article: Latest SGE gold withdrawals figure so large it must be a typo. Mustn’t it?

Koos Jansen writing on bullionstar.com has come up with an answer to this anomaly. According to Koos, in restructuring its reporting, the SGE is actually reporting a different figure than its old straight withdrawals total – but is now reporting what it describes as ‘Delivery Amount’ instead.  He notes that this is described as: the sum of the trading volume of physical products and the contract delivery volume of deferred products. This is a rather different figure – much larger – than the old withdrawals amount.  To read Jansen’s explanation, and what it means, click on ‘Are SGE Withdrawals Gone?

To us the nuance of the category Delivery amount and the old Witdrawals was lost without Jansen’s explanation of the change in SGE reporting policy, which is set out in full in the article noted above.  If this SGE announcement pattern continues then we will no longer be able to compare the SGE’s gold withdrawals on a like for like basis any more.

China gold demand so far this year has already beaten previous full year record

With around seven weeks of purchasing still to go in 2015, gold deliveries out of China’s Shanghai Gold Exchange (SGE) so far this year have already shot past the 2013 full year record and are heading towards beating the full year total by a massive 400 tonnes or so.  The latest week’s withdrawals figure out of the SGE for the week ending November 6th came out at 44.9 tonnes bringing the total for the year to date to 2,210 tonnes.  In the previous full year record for SGE deliveries (in 2013) the total for the full year was 2,181 tonnes so year to date the flow of gold through the SGE is already some 366 tonnes ahead of the record 2013 year at the same stage.  With gold demand in China currently reported as being particularly strong given the weakness in the gold price proving attractive to Chinese consumers, we see no reason why the full year total should not end 400-450 tonnes higher than in the previous record year.

To read more on this do click on my article on this on Sharppixley.com – China gold demand already passes 2013 annual record.

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.

Latest SGE gold deliveries suggest enormous 2015 total of over 2650 tonnes!

The huge level of weekly Shanghai Gold Exchange delivery numbers is becoming something of a repetitive news item and is perhaps losing its impact, but it shouldn’t.  Week 37 (ending September 18th) saw another 63 tonnes delivered out of the Exchange, which makes the year to date total 1,892 tonnes – 281 tonnes more than at end week 37 in the massive 2013 record year for Chinese gold consumption.  If we extrapolate from the year to date figure this would suggest total SGE gold withdrawals for the year would come to an enormous 2,650 tonnes or higher – equivalent to over 80% of total global supply of new mined gold.  With SGE deliveries usually rising late in the year in the long build-up to the Chinese New Year, which falls on February 8thnext year, we certainly shouldn’t discount the likelihood of this level being achieved, or even bettered.  There seems to be no slowdown happening as yet.

Overall, SGE deliveries started to pick up in early July (normally one of the weakest months of the year) and have averaged 62 tonnes a week since then.  The figure for the week ended September 11th was the third highest weekly total ever

12 week withdrawal figures on SGE to September 18th

SGE Withdrawal week ended

Physical gold withdrawn

July 3rd

44.3 tonnes

July 10th

61.8 tonnes

July 17th

69.2 tonnes

July 24th

73.3 tonnes

July 31st

53.3 tonnes

August 7th

56.1 tonnes

August 14th

65.3 tonnes

August 21st

73.0 tonnes

August 28th

59.9 tonnes

September 4th*

36.8 tonnes*

September 11th

73.7 tonnes

September 18th

63.2 tonnes

Total

729.9 tonnes

*September 4th figures are for a three day trading week with the Exchange closed for the Chinese Victory Day celebrations on the Thursday and Friday.

These figures fly in the face of the same mainstream analysts’ estimates of Chinese demand this year, which they say is slipping, along with the nation’s declining GDP growth rate – although this is still currently estimated at over 6% .  The disparity between the SGE figures and the analysts’ assessments of Chinese consumption is ever growing – and this year looks as though the difference by the year end may be as much as 1,500 tonnes or more.

As we have noted before, a significant proportion of the difference is down to how the analysts estimate ‘consumption’.  Demand categories such as gold used in financial transactions tends to be ignored by the analysts, yet this is still gold flowing into China and in terms of gold movement from West to East remains hugely relevant.

Jeff Christian of CPM Group, in his recent presentation at the Denver Gold Forum attributed the enormous disparity to a very large proportion of SGE gold being in a loop between jewellery manufacturers and the Exchange which meant that he considers there’s a huge amount of double counting involved.  Yet if this is the case then presumably it would also have applied to 2013 to the same extent and back then there was recognition from all that Chinese demand hit a new record level, although still not as high as SGE gold withdrawals for that year.  With SGE withdrawals so far this year now being 17% higher than at the same time in 2013, then we should expect to see demand as calculated by the analysts at considerably higher levels than even in 2013 – not lower as they are claiming this year.

Jeff Christian and CPM’s view that SGE gold withdrawal figures overstate the demand position by as much as 233% does seem excessive under these circumstances.  It suggests recognition that there is this huge assessed  discrepancy between the SGE figures and actual Chinese demand as calculated by the analysts and then coming up with a theory to fit their own calculations.  This theory is then presented as fact.  I may be doing Christian a disservice here, but given the other mainstream analysts have sometimes come up with differing answers to the massive gap, one has to wonder how accurate any of their Chinese demand assessments actually are.  There is a severe lack of transparency here which presumably the Chinese have no wish to clarify.

If we add up known gold exports to China from Hong Kong, and direct to the mainland, from Switzerland and the UK, all of which publish these data, add in China’s own domestic production plus an assumed level of domestic scrap supply and imports from other nations, all this looks to be heading to a total of 2,000 tonnes or more this year.  This, like the SGE withdrawal figures, is also hugely more than the analysts’ demand estimates.  But this gold is all being ‘consumed’ inside China in some form or other – perhaps including some by the central bank – and continues to demonstrate China’s dominant position in the absorption of global physical gold flows.

According to gold and China watcher Koos Jansen, SGE withdrawals are indeed recognised by the Peoples Bank of China as equating to the country’s real gold demand – but then of course the PBoC has also been complicit in under-reporting the Chinese central bank gold holdings for many years. And there are few outside China who believe that the supposed increase in transparency engendered by now reporting monthly central bank purchases is necessarily any more realistic than the times when information on these purchases was withheld.

The PBoC, of which the SGE is a subsidiary, also tells us that the Gold Exchange rules prevent roundtripping of gold which, if correct, would totally negate Christian’s theory – but then it’s a case of who do you believe to provide the more realistic data – the PBoC, or the World Gold Council, GFMS, Metals Focus or CPM.  Perhaps none of the above.  The analysts are all good at picking up and collating data from reliable sources, but perhaps not from countries like China which can make disinformation into an art form if it suits.

This blog post was originally published on www.sharpspixley.com.  View more of my articles by clicking on the site.