UPDATE 1-China gold demand slumps 19.4 pct on yr, but output rises

Wed Jul 23, 2014 10:47pm EDT

(Adds details, background)

SHANGHAI, July 24 (Reuters) - China's gold demand slumped 19.4 percent in the first six months of 2014 from year ago, the China Gold Association said in a statement on Thursday, but production rose strongly in the same period as miners ramped up output to protect profit margins.

Gold demand from China, the world's largest consumer, has slackened this year as a 28 percent tumble in 2013 prices, which was the first annual decline in 13 years, dented consumer confidence in the metal as an investment tool.

Lower demand this year is also partly due to huge purchases last year. The drop in prices prompted many to bring forward their purchases, eating into 2014 demand.

Gold demand from January to June stood at 569.45 tonnes, compared with 706.36 tonnes in the same period last year, the association said in a statement on its website. Total output in the first six months of 2014 reached 211.1 tonnes, up 9.47 percent from a year ago.

In a sign that Chinese consumers were seeking other investments as an inflation hedge, sales of gold bars and coins fell 62.1 percent and 44.3 percent respectively.

Jewellery sales in the first half rose 11 percent from a year ago to 426.17 tonnes, while industrial consumption rose 11.3 percent.

While global gold prices have climbed nearly 8 percent this year on the back of geopolitical risks in Ukraine and the Middle East, Chinese miners remain under pressure to protect their profit margins as costs increase.

While China is considered a low-cost producer compared with its global peers, costs have steadily risen on the back of higher wages, increased environmental requirements and tougher safety standards.

To cope with weaker bullion prices, some large miners such as China Gold International Resources Corp Ltd, have ramped up output as a way to reduce per-unit production costs.

Zijin Mining Group Co Ltd 2899.HK 601899.SS, China's largest listed gold producer, said it partly offset falling product margins by bolstering sales.

China's gold imports from Hong Kong dropped to a 16-month low in May, bringing total imports in the first five months of 2014 to 406.833 tonnes, down 1.58 percent from the same period last year, according to most recent data from Hong Kong Census and Statistics Department. (Reporting by Fayen Wong; additional reporting by A.Ananthalakshmi in SINGAPORE; Editing by Paul Tait and Michael Perry)