Editor’s Note
International silver prices have stabilized following recent volatility, but a supply squeeze in China continues to draw down inventories amid strong demand. This article examines the market dynamics and the factors sustaining the tightness.
International silver prices have steadied after a period of intense volatility, yet 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-to-silver ratio stabilized near 61 times.
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 contango structure indicates intense demand for immediate delivery of silver.
The report notes that silver inventories in warehouses designated by the SHFE 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 deferment fees to long holders to avoid physical delivery, further highlighting the extreme scarcity of spot metal in the market.
Analysts believe this tightness will be difficult to alleviate in the short term unless smelters can significantly ramp up production unusually during the upcoming Spring Festival holiday. Traditionally, the Spring Festival period is a seasonal lull in 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 high physical investment demand and concentrated procurement from industrial sectors like solar energy.
The report points out that in Shenzhen’s Shuibei, the nation’s largest gold and jewelry wholesale market, demand for silver investment bars remains robust.
However, there are signs that pre-holiday speculative fervor is cooling. The total open interest on the SHFE has dropped to its lowest level in over four years, as investors reduced 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 will require a substantive rebuild of inventories to resolve.
Industrial demand is another major driver. Chinese solar panel manufacturers require large amounts of silver in production.