Jewellers margin set to take a hit as gold leasing rates surge
The gold leasing rates by leading jewellery firms have shot up sharply as a tariff scare from the Trump administration has prompted global banks to secure the precious metal, leading to a supply crunch in India, among the top consumers of the metal.
From 2-3% earlier, the rates have jumped to levels of about 6-7% in a month, which is likely to hurt the margins of organised jewellery players such as Titan, Senco, Kalyan Jewellers and PN Gadgil among others, sector experts said.
Given the Trump administration’s approach to tariffs, the jewellery firms anticipate a further increase in the rates.
“Gold leasing rates have more than doubled due to the trade and tariff wars. This will put pressure margins. We are monitoring the situation,” Kiran Firodiya, chief financial officer, PNG Jewellers said in a conversation with FE.
Gold leasing rates refer to the interest rates charged on leased gold when jewellers borrow gold, often from banks or bullion traders, rather than making outright purchases of the precious metal. Local banks source gold from overseas banks and extend it as loans to jewellers to help them manage their inventory and working capital.
To protect margins, jewellers may need to increase making charges to offset the spurt in sourcing or funding costs. This may increase the price of jewellery, something the firms are not comfortable doing since gold prices have been on a tear in recent weeks. Also, unlike the December quarter, where firms had the festive and wedding season to aid sales, the March quarter has no major tailwinds from a consumption perspective, experts said.
Highlighting the tough situation for jewellers in an investor call on Friday, Suvankar Sen, MD of Senco Gold & Diamonds, said the increase in gold leasing rates was a cause for concern for firms.
He added that the hike in leasing rates would increase funding costs for his company by about 0.5%, impacting his firm by about Rs 7-8 crore in February and March.
Gold prices on the MCX, for perspective, have jumped 8% in the last one month, with the trend remaining largely volatile. Trump’s tariff policies have become increasingly unpredictable due to delays and exemptions. The geopolitical and economic uncertainty has also boosted gold’s appeal as a safe haven, executives said.
Titan, which is the country’s largest organised jeweller said, that it would wait for some time, possibly the whole of the March quarter, before taking a call on pricing of jewellery.
“The initial indications are that the gold lease rates could go up. We need to wait for a month or two to understand how the supply, and therefore the pricing, will play out,” Vijay Govindarajan, associate vice president – finance, Titan, told analysts this month.
Source: https://www.financialexpress.com/