China’s Gold Consumption May Stagnate on Lower Industrial Usage

By Feiwen Rong

Dec. 4 (Bloomberg) -- Gold demand in China, the world’s second-largest consumer, may stagnate this year as volatile prices dissuade buyers and industrial usage drop because of the economic slowdown, an industry group said.

Consumption may be 360 metric tons compared with the record 362 tons last year, Hou Huimin, vice chairman of the China Gold Association, said in an interview in Shanghai. Demand jumped more than 20 percent last year.

Bullion prices have dropped 25 percent from its March record on concerns jewelry demand may fall with the global economic slowdown and as inflation concerns eased. China posted the slowest economic growth in five years in the third quarter.

“China’s gold market still has plenty of potential and rising investment demand may be able to offset the reduced usage in the industrial sector,” Hou said.

Gold for immediate delivery fell 0.6 percent to $769.16 an ounce at 1:51 p.m. Beijing time, down 7.7 percent for the year. Hou’s association represents producers, traders and retailers.

The world’s fourth-biggest economy expanded 9 percent in the third quarter, the weakest pace since 2003. A record contraction in manufacturing last month also signaled the slowdown is deepening, reducing demand from industries that use gold as a raw material.

China, the world’s largest producer of bullion, may also post slower growth in gold mine output because of higher costs and lower prices, Hou said at a conference earlier today.

Output Slows

Gold production may rise 2 percent to 276 tons this year, Hou said. Output rose more than 13 percent in 2007 to help China overtake South Africa as the world’s biggest producer.

“China’s gold mine production growth is expected to slow as lower prices this year reduced supply from low-grade, high- cost mines,” Hou said. Output rose 3.3 percent to 223.1 tons in the first ten months from a year ago, he said.

China’s gold mine output may reach 280 tons this year because of gains by the five biggest producers, Song Quanli, head of disciplinary inspection at China National Gold Group Corp., said today in an interview. The state-owned company accounts for 20 percent of output.

Production from the five biggest producers, which includes Shandong Gold Mining Co., Zhaojin Mining Industry Co., Zijin Mining Group Co. and Lingbao Gold Co., represents more than 40 percent of total output, Song said.

To contact the reporter for this story: Feiwen Rong in Beijing at frong2@bloomberg.net