As Chinese wholesale gold demand, measured by withdrawals from the Shanghai Gold Exchange, has been strong over the first three quarters of this year we will have a close look in this post at how this demand was supplied. Total Chinese wholesale demand Q1 to Q3 2014 was 1,453 tonnes, down 13 % y/y. In comparison, the World Gold Council (WGC) states Chinese consumer demand in the first three quarters was 638 tonnes, which is not even half of SGE withdrawals – more about this difference in a future post.
Domestic mine supply is a certainty in China, this year 451 tonnes will be mined domestically (37.6 tonnes a month), which leaves import and scrap to fill the gap.
In 2013 most supply of total Chinese wholesale demand was originally sourced form the UK – the London Bullion Market, transferred through Switzerland and Hong Kong, eventually reaching China mainland. The bulk of Chinese import in 2013 came in through Hong Kong.
This year the Chinese have started to import more gold directly into the mainland, circumventing Hong Kong. Unfortunately China itself doesn’t publish gold trade data – as they prefer to keep the world uninformed about their gold hunger not to influence the price. China openly changed import policy in April (from 1:14):
China’s shift in import policy has been made possible as China developed it’s refining capacity significantly in recent years, hence not all gold across the globe that is headed for the Chinese market has to go through Switzerland. Additionally the Shanghai Free Trade Zone will take over Hong Kong’s transit point. The result being, this year it’s harder to track gold import into China as all countries around the world can ship directly to the mainland.
Based on my basic equation for Chinese gold import (Import = SGE withdrawals – scrap – mine) I was able to make an accurate prediction for Chinese gold import for 2013. In March 2014 I said in a interview it was 1,500 tonnes, a few months later the China Gold Association confirmed it was a little over 1,500 tonnes.
17 tonnes of doré was imported from overseas mines in 2013 and 428 tonnes domestically mined, total Chinese mined gold was 445.417 tonnes; Scrap supply was 246.923 tonnes; 1506.5 tonnes of bullion was imported by commercial banks; total Chinese gold supply (and demand) was 2198.840 tonnes.
Although I don’t think I’m able to make such an accurate prediction ever again, my basic equation has proved to be a legitimate tool for estimating gold import. Putting it to use, China should have imported 936 tonnes in the first three quarters of this year.
This would imply SGE withdrawals (1453 tonnes) were supplied by:
- 936 tonnes import
- 179 tonnes scrap
- 338 tonnes mine
To trace the imported 936 tonnes, let’s run through the customs data of the world’s largest trading hubs, countries that additionally have large amounts of gold stocks; Hong Kong, the UK, Switzerland and the US.
Hong Kong net exported 566 tonnes to China year to date, down 34 % y/y.
As SGE withdrawals have shown a rebound since September, Hong Kong net export to China increased concurrently.
In September Hong Kong net exported 69 tonnes to China mainland.
(Looking beyond September SGE withdrawals have increased even more. Seasonally Chinese gold demand is at its peak in December and January.)
China changed it’s import strategy in April, until April most gold destined for the Chinese market – and more – was transferred to Hong Kong to be re-exported to China or stored in transit. In the next chart we can see hundreds of tonnes of gold were not only transferred through Hong Kong since 2013, but also remained in Hong Kong.
Hong Kong remains an important transit point for the coming months, as I wrote in Hong Kong Is The Key In Global Gold Trade, For Now (June 2014). From Koos Jansen:
In 2013, the year Chinese demand for physical gold exploded, Hong Kong gross gold import was 2239 metric tonnes. The bulk of this was exported to China mainland (net 1158 tonnes), but a staggering 597 tonnes was left behind. Hong Kong is inhabited by 7 million people who couldn’t have bought 597 tonnes of gold in one year. According to my analysis most of Hong Kong’s net import is floating supply that was shipped to the East by the bullion banks, pending for a bid in Asia, likely from China.
…It will be interesting when Hong Kong becomes a net exporter.
In June I was speculating there are still hundreds of tonnes of floating supply in Hong Kong available for China to import. When Hong Kong becomes a net exporter we will experience more of the globe’s finite floating supply is being sucked into China’s black hole, not to return in the foreseeable future. This is exactly what is happing at the moment; Hong Kong turned from net importer to net exporter in Q3 2014. The next chart will be crucial in coming months/years.
In August Hong Kong net exported 820 Kg, in September 14.16 tonnes. I expect, based on strong SGE withdrawals in October and November, to see future Hong Kong net export to China to be strong and Hong Kong to continue to be a net exporter.
In 2013 the main source of gold for China was the UK, home of the London Bullion Market. The UK net exported 1424 tonnes in 2013, which took a large bite out of London’s floating supply. How much there is left remains to be seen.
The UK has net exported 64 tonnes to China year to date. We can clearly see the UK started exporting directly to China in April.
The UK has net exported 418 tonnes YTD to Switzerland.
According to Eurostat no other European nation has exported gold directly to China in 2014.
How much Switzerland directly exported to China in 2013 we don’t know, at the time the Swiss only disclosed total gold import and export data (we do know from Hong Kong’s trade data Switzerland net exported 913 tonnes to Hong Kong in 2013, YTD 253 tonnes). Luckily, Switzerland discloses gold trade data country specific since 2014. In the first three quarters of this year Switzerland net exported 110 tonnes of gold to China.
The United States
I checked with multiple sources, but the US officially doesn’t export much gold directly to China, only 3 tonnes YTD.
ROW is short for the Rest Of the World.
Hong Kong, the UK, Switzerland and the US have net exported 743 tonnes in the first three quarters to China. My estimate for Chinese import YTD was 936 tonnes, so were did the other 193 tonnes came from?
From the countries I just reported on I have free access to their gold trade data . For many other countries this service is not free or hard to access through the country’s own customs database. However, by searching the net we can collect more information on how much gold was directly sent to China. For example from Australia.
According to GTIS Australia net exported 173 tonnes of gold in 2013 to China (Bron Suchecki noted The Perth Mint exported 225 tonnes to China in 2013 in this post’s comment section). Clearly Australia is a significant gold exporter to China.
According to COMTRADE Australia net exported 72 tonnes to China from January until May. If we make an estimate how much was exported YTD, this could have been well over 100 tonnes. Let’s be conservative and estimate Australia has exported 110 tonnes in Q1 – Q3 to supply the SGE.
UPDATE 01-16-2015: COMTRADE data leads to double counting, read this post for more information.
Hong Kong, the UK, Switzerland, the US and Australia net exported (566 + 64 + 110 + 3 + 110) 853 tonnes to China. This leaves a gap of 83 tonnes (936 – 853) of gold China should have imported from the ROW. Could this have been possible? Yes, I think so as there are many counties of which I have no gold trade data (think about Africa, South America and central Asia).
On September 19 The Shanghai Customs District People’s Republic China reported Shanghai imported approximately 380 tonnes ($15.983 billion) of gold in 48 batches from January until August. Of course this gold can be the exact same metal I just reported to have been imported. However, Shanghai is just one port in China. From the SGE:
The SGE currently has a network of 58 Certified Vaults (of which 55 are for gold storage and three are for silver storage) in 36 cities nationwide covering all major gold refinement and consumption regions, providing physical delivery, transfer, logistics, and transport services to enterprises and individuals across the country.
I assume gold can be imported directly to many other regions than Shanghai (Shenzhen, Beijing, etc.)
The 936 tonnes import is an estimate, though, the only way this estimate could have been lower is if scrap supply was higher, which is unlikely as the Chinese are clearly accumulating more gold in an environment of low gold prices, not selling.
One thing is for sure, China has at least imported 900 tonnes in the first three quarters of 2014. If we add 338 tonnes of mine supply the total is 1,238 tonnes, which is already twice Chinese demand as reported by the World Gold Council. The gold trade numbers disclosed in this post can not be explained as weak Chinese gold demand. I hope this post gives you a clear view of how much Chinese gold demand is in contrast to the reports of the mainstream media.