Editor’s Note
This article highlights the divergence between stabilizing international silver prices and persistent supply tightness in China, driven by robust investment and industrial demand. The gold-silver ratio, a key metric for precious metals investors, remains elevated, underscoring silver’s relative valuation.
International silver prices have stabilized after experiencing sharp fluctuations, but supply tightness in the Chinese market persists, with investment and industrial demand depleting inventories. On February 10, the international spot silver price hovered around $80 per ounce, and the gold-silver ratio remained stable near 61 times. (The gold-silver ratio was nearly 62 times as of the close of U.S. stocks on February 10.)
According to Bloomberg, the premium for near-month silver contracts on the Shanghai Futures Exchange (SHFE) has surged to a record high. This strong spot premium structure indicates intense demand for silver for immediate delivery.
The report points out that silver inventories in warehouses designated by the Shanghai Futures Exchange and the Shanghai Gold Exchange have fallen to their lowest levels in over a decade. Since late December last year, short sellers have had to continuously pay deferral fees to long holders to avoid physical delivery, further highlighting the extreme scarcity of spot silver in the market.
Analysts believe this tight situation will be difficult to alleviate in the short term unless smelters can exceptionally ramp up production during the upcoming Spring Festival holiday. Traditionally, however, the Spring Festival period is a low season for production activities. The market tightness is expected to continue affecting the procurement costs for industrial users and the position management of traders.
The current market demand momentum stems from two aspects: persistently high physical investment demand and concentrated procurement from industrial sectors like solar energy.
The report notes that in Shenzhen’s Shuibei, the nation’s largest gold and jewelry wholesale market, demand for silver investment bars remains strong.
However, there are signs that speculative enthusiasm before the holiday is cooling down. The total open interest on the Shanghai Futures Exchange has fallen to its lowest level in over four years, as investors reduced their positions ahead of the Spring Festival holiday. This may imply a short-term decrease in price volatility, but the fundamental contradiction between physical supply and demand still requires a substantial rebuild of inventories to be resolved.
Industrial demand is another major driver. Chinese solar panel manufacturers require large amounts of silver in production. According to Jia Zheng, trading head at Shanghai Soochow Jiuying Investment Management Co., many companies took advantage of the recent price drop to buy on dips. Simultaneously, to complete orders before the expiration of the export tax rebate policy on April 1st, they are arranging production in advance, which has intensified concentrated procurement demand in the short term.
