China‘s Silver Demand Tightens Global Market, Sparks Price Surge
SHANGHAI - A confluence of factors, including dwindling Chinese inventories, increased domestic demand, and potential trade disruptions, is placing significant pressure on the global silver market, driving spot prices above $52 an ounce as of Wednesday. The tightening supply comes as China’s silver consumption,notably in the booming photovoltaic sector,rises alongside a shift in investor behavior following recent tax policy changes.
The situation is particularly sensitive given existing geopolitical tensions and the potential for further market volatility. Experts warn that proposed U.S.silver tariffs could exacerbate the squeeze, locking existing silver supplies within the U.S. and intensifying the impact on Shanghai markets already grappling with inventory shortages. this confluence of events has created a ”backwardation” – where near-term silver prices exceed those of future contracts – signaling an immediate supply crunch.
Daniel Ghaly, a commodities strategist at TD Securities, explained the potential ramifications of tariffs: ”If silver tariffs are imposed, silver that has already made its way into the U.S. will be locked up. If that happens while Shanghai markets are still reeling from the effects of the last time London supported, the impact will be significant.”
China’s declining silver inventories, coupled with a relatively fixed supply, are fueling concerns among analysts. Wu of Jinrui Futures highlighted the inelasticity of supply as a key driver of the current price pressures. Concurrently, demand is being bolstered by China’s expanding solar panel industry, which relies heavily on silver for its photovoltaic components. The fourth quarter traditionally represents peak installation season for solar projects, further amplifying demand.
Recent policy shifts within China are also contributing to the dynamic. Some retailers have begun prioritizing silver purchases following the removal of a long-standing value-added tax deduction on certain gold sales conducted outside of official exchanges. This shift in preference is adding another layer of demand to an already constrained market.
