DUBAI: In the desert on the outskirts of Dubai, one of the world’s biggest gold refineries is under construction. When completed next year, it will help to alter the balance of power in the global gold industry.
Growth in demand for the precious metal is shifting east, to Asia’s fast-growing economies. But key industry activities such as refining and clearing — matching investors’ buy and sell orders — remain dominated by Europe and the United States.
The $60m refinery being built by Kaloti Precious Metals in Dubai is part of efforts to change that pattern, as is a plan by the Dubai Gold and Commodities Exchange to introduce a spot gold contract this June.
“Dubai is already a top global centre for gold trading,” Tarek El-Mdaka, Chief Executive of Kaloti Precious Metals, said. “The refinery is part of the next stage, making Dubai a top centre for physical gold refining and clearing.”
If Dubai succeeds, it will be a new example of how the emirate can use its proximity to top consumers in India and China, low-tax environment and highly developed transport sector to muscle in on industries controlled by others.
Gold imports and exports handled by Dubai shot up to $75bn in 2014 from $6bn in 2003; nearly 40 percent of the world’s physical gold trade passed through Dubai last year, according to the Dubai Multi Commodities Centre. But the region’s refining clout has lagged. Annual capacity in the United Arab Emirates is about 800 tonnes, including a 450-tonne refinery currently operated by Kaloti; Switzerland dominates the industry with over 3,000 tonnes, accounting for roughly 50 percent or more of global refining.
Kaloti’s new refinery will have an annual capacity of 1,400 tonnes of gold and 600 tonnes of silver, making it more than three times the size of any of the UAE’s current refineries.
The project is a bet that gold demand in Asia will grow strongly in coming years. That cannot be guaranteed; last year India, seeking to cut its current account deficit, imposed a record 10 percent import duty on the metal.
Global gold demand shrank 15 percent to 3,756 tonnes last year, according to the World Gold Council, an industry body.