>INDIA SCRAP SALES RISE AS GOLD TOPS INR15,000/10 GRAMS

Mumbai - Scrap gold sales in India, the world's largest consumer of the yellow metal, is likely to pick up pace following a sharp rise in local prices, industry officials said Tuesday.

This could be bad news for those waiting for a revival of Indian import demand.

Indian imports had briefly recovered in April due to strong demand during the Akshaya Trithya festival but imports slowed again in May and could fall further in June following the rise in prices.

If the uptrend in prices continue, there could be a repeat of the January-March quarter, when imports plunged to around 1-2 metric tons a month amid strong scrap sales and soaring import prices, traders said.

Spot gold in Mumbai, the largest bullion market in the country, has risen above 15,000 rupees per 10 grams, inching towards the all-time high of INR15,800/10 grams hit in February, prompting investors to book profit by selling their old gold in the market.

"We are seeing (daily) scrap sales of 50-100 kilograms in the last few days. This could double if prices continue to rise," said Ketan Shroff, managing director of Pushpak Bullions Ltd.

Average daily scrap sales in April were around 25-30 kgs.

People are expecting prices to rise to INR16,000/10 grams in the coming days following predictions that spot gold will hit $1,000/oz in the international market, he said.

"Many are waiting for prices to reach those levels before selling," Shroff said, adding most of the sales proceeds are being invested in local equity markets.

India's benchmark Sensex has gained nearly 80% since early March amid rising risk appetite among investors and on improved market sentiment following a clear win for the ruling Congress Party-led alliance in recent elections. Better-than-expected corporate results have also boosted sentiment.

Scrap Sales Picking Up In Smaller Towns

In Jaipur, another major market, scrap gold sales are yet to pick up speed, but as prices continue to advance there could be a rise in old jewelry sales, said Rameshwar Lal Goel, president of the Sarafa Traders Committee.

In Chennai, a major market in south India, scrap sales could rise to around 60-70 kg per day, from the usual average of 30 kg, if prices continue to rise, said Daman Prakash, director of MNC Bullion Pvt. Ltd.

"Scrap sales will not rise to the levels we saw in January-March, but some of the people who missed out during the last rally to INR16,000 will try selling now," Prakash said.

During January-March, average daily scrap sales in Chennai were 80-100 kgs, according to traders.

Shroff of Pushpak Bullions said increasing availability of scrap gold will impact imports in the months ahead.

India imported around 15 tons of gold in May, down from 29 tons in April.

"Banks have enough stocks with them, while jewelry offtake is slow. Fresh orders won't be booked at these levels and we could see negligible imports this month," said Shroff.

In June 2008, the country had imported 24 tons of gold, according to the Bombay Bullion Association.

"Unless prices correct to INR13,500/10 grams, imports are going to be very low for the whole year," said Goel.

He noted prices are unlikely to move downward anytime soon.

Source: COMMODITIESCONTROL