Editor’s Note
This article highlights the intensifying supply squeeze in China’s silver market, driven by robust demand. While international prices have steadied, domestic inventories have hit a decade low, pushing local premiums to record highs. The situation underscores a significant divergence between global and regional market dynamics.
While international silver prices have stabilized after recent volatility, supply tightness persists in the Chinese market, with investment and industrial demand depleting inventories. As of February 10th, the international spot silver price hovered around $80 per ounce, with the gold-silver ratio stable near 61.
According to Bloomberg, the premium for the near-month silver contract on the Shanghai Futures Exchange (SHFE) has surged to a record high. This strong spot premium structure indicates intense demand for immediate delivery of silver. Zhang Ting, a senior analyst at Sichuan Tianfu Bank, stated:
Silver inventories in designated warehouses of the Shanghai Futures Exchange and the Shanghai Gold Exchange have fallen to their lowest levels in over a decade. Since late December, to avoid physical delivery, short sellers have had to continuously pay carrying fees to long holders, further highlighting the extreme scarcity of spot metal in the market.
Analysts believe this tight situation will be difficult to alleviate in the short term unless smelters can significantly ramp up production during the upcoming Spring Festival holiday—a period traditionally marked by reduced production activity. The market tension is expected to continue affecting procurement costs for industrial users and position management for traders.
Current market demand is driven by two factors: persistently strong physical investment demand and concentrated procurement from industrial sectors like solar energy.
In Shuibei, Shenzhen—the nation’s largest gold and jewelry wholesale market—demand for silver investment bars remains robust. Liu Shunmin from Shenzhen Guoxin Precious Metals Company noted:
Merchants can easily find buyers willing to pay a premium for investment bars. However, there are signs that pre-holiday speculative fervor is cooling. The total open interest on SHFE has dropped to its lowest level in over four years as investors reduced positions ahead of the holiday, which may lead to reduced price volatility in the near term. Nevertheless, the fundamental supply-demand imbalance will likely persist until inventories are substantially rebuilt.
Industrial demand is another major driver. Chinese solar panel manufacturers require significant amounts of silver in production. According to Jia Zheng, trading head at Shanghai Soochow Jiuying Investment Management Co., many companies took advantage of recent price dips to buy on weakness. Furthermore, to complete orders before the expiration of an export tax rebate policy on April 1st, they are front-loading production, which has intensified short-term concentrated procurement demand.