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Silver is getting hot in China as imports of the white precious metal is soaring thanks to increasing demand for the commodity for industrial use and jewellery purposes.
07 Feb 2011
BEIJING (Commodity Online): Silver is getting hot in China as imports of the white precious metal is soaring thanks to increasing demand for the commodity for industrial use and jewellery purposes.

For the first time, China's net imports of silver hit a record high as it quadrupled in 2010 to 3,500 tonnes (112 Million ozs). Precious metals analysts view this as a shift in the Chinese demand for silver as traditionally China used to be a silver exporter.

Lee Kui, a precious metals dealer in Beijing, said that a few years back, China used to export silver in big quantities. “For instance, in 2005, China made net exports of 3,000 tonnes of silver. In five years, the exporter of silver has become the importer of silver. This shows that Chinese demand for silver is soaring,” he said.

China was a net exporter of silver for many years and the Chinese export used to be a major component of global silver supply. This changed in 2007 when China became a net importer of silver. The demand figures being released by the General Administration of Customs in China has been showing the massive turnaround in China from large silver exporter to large silver importer.

China has gross exports of 1,575 tons of silver in 2009, down 58 percent from a year earlier. China’s gross imports of silver increased 15 percent to 5,159 tons in 2010.

A longer term perspective is as ever important as are the net figures. In 2005, China was a net exporter of nearly 3,000 tonnes (3 million kilogrammes) of silver. Last year, in 2010, China imported more than 3,500 tonnes of silver. Incredibly, Chinese net imports of silver surged four fold in just one year from 2009 to 2010.

Demand for silver in China has risen sharply in recent months and years. Growing middle classes and savers in China, India and other Asian countries have been turning to “poor man’s gold” and using silver as a store of value. Gold has risen above its historical nominal high in local currency terms internationally and silver is seen by many as a cheaper alternative.

Buyers in China, Asia and internationally can buy some 50 ounces of silver for every one ounce of gold. The gold silver ratio today is 49.3 (gold at $1,342 per ounce divide by silver at $27.20 per ounce) meaning that 49.3 ounces of silver can be bought with every one ounce of gold.

Gold is increasingly unaffordable to the “man in the street” in China and wider Asia and this is leading to increased purchases of silver as a store of value, rather than gold. With the price of gold set to remain high in the coming years, this will continue.

Chinese and most Asians have experienced the decimation of their life savings through currency debasement and hyperinflation and unlike westerners understand the importance of owning gold and silver.

Besides huge demand for silver as a savings vehicle and a store of value in China, there is also very significant industrial demand in China and internationally.

There remain a huge range of industrial applications for silver. While demand from the photography sector has declined, demand from the medical, solar energy, water purification and many other sectors continue to rise significantly.

Today industrial uses account for 44% of worldwide silver consumption and in conjunction with investment and store of value demand, industrial demand continues to grow.

According to a new research report from China Research Intelligence (CRI), an important feature of China's silver market is that the domestic price is higher than international market price.

“Domestic price of silver in China is not completely synchronized with the international price and it lags behind with too large fluctuation, resulting in increasing risk of downstream silver consuming enterprises,” said the report.

The CRI report said that China urgently needs to improve the formation mechanism of domestic silver price and seek appropriate trade modes to maintain values and avoid risks. It will be the general trend to introduce silver futures.
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COMMENTS (1)
Dfor
10 Apr 2011
This makes no sense. 1. Coming from a middle class, I can assure you thats not true. No body in the middle class of India and China would ever substitute Silver for Gold. Gold is a supreme jewelry than Silver, period. If its affordable, you buy it. if not you buy it when it is. Also, the gold-silver ratio has only declined to historic lows in 2010. 2. This sounds plausible but definitely cannot be an explanation by itself. I would love to see some numbers regarding the growth in demand from industrial applications. I'd be extremely surprised, if the industrial demand from solar panels accounted for the doubling of silver prices since July 2010. 3. Increase in investment demand always seem to puzzle me. WHY is silver suddenly a better storage of intrinsic value than gold. If its an inflation hedge, where will the demand come from in an inflationary environment for this storage of value that you have. Industry?. May be I am missing some thing. Most of the silver ETFs seemed to have increased their outstanding shares to tap into higher demand for silver investment but I dont know who is buying these ETFs or silver itself and WHY?
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