Silver: China's New Gold?

Former silver exporter is now a big net importer...

CHINA HAS turned from a net silver exporter to a big net importer. Industrial and investment demand is soaring. Middle Eastern demand also appears to be picking up strongly, writes Shivom Seth for MineWeb.

Silver's widespread use in industry and jewelry has ensured that though commodities may drift lower in the near term on worries about the global economy, the silver market is likely to remain bullish, maintain analysts.

"For the first time, China's net imports of silver hit a record high as they quadrupled in 2010 to 3,500 tonnes. Though many commodities have been affected by softer Chinese and US economic data and worries about Greece's debt, in China silver continues to be strong,'' said a bullion analyst with a foreign brokerage house here.

Analysts have said that the economic situation across the globe – a slowing US economy, Europe's debt crisis, a weak Dollar – may all help life the fortunes of the white metal.

"Reports indicated that US payrolls grew at the slowest pace in eight months in May, and the Dollar has slid to a one-month low against six major currencies. Silver and gold will definitely rise as both the precious metals move in tandem with the negative data,'' said Sonamull Shah, bullion retailer.

Moreover, with the news that China Universal Asset Management Company has got the go-ahead from the nation's financial market regulator to start a fund that will invest holdings in overseas exchange traded products backed by precious metals, traders insist that precious metals are set to get a fillip.

Both traders and analysts have been tracking news and data emanating from China to understand how the Silver Price will move. But, it is not just China.

Reports have indicated that Turkey imported 25.7 tonnes of silver in May, up from 61 kilograms in April. The surge shows that Middle Eastern demand for silver, which has not been noteworthy to date, may soon become an important catalyst for higher silver prices.

Analysts have also alluded to the fact that in 2005, China actually exported 3,000 tonnes of silver. In a matter of five years, an exporter of silver has become an avid importer.

The situation took a dramatic turn in 2007, when China became a net importer of silver. The demand figures released by the General Administration of Customs in China has shown the marked turnaround. 

"One needs to take a look at what has been happening in silver from the start of the year,'' said Manikbhai Shah, silver retailer in Mumbai.

"First, China imported 245.6 metric tonnes of silver in February. The figure was so close to the 260.6 metric tonnes that the country imported last February and it showed that China was willing to shell out money for the white metal at over $30 per ounce,'' he said.

Again, Shah said, Silver Prices broke the $40 barrier for the first time in 31 years in April 2011. Moreover, the total holdings of silver through the Exchange Traded Funds have already marked a new high, having recovered strongly from the March correction. 

At the end of April, the total holding stood at just below 50 million ounces which was 45% higher than a year ago period.

Though China had gross exports of 1,575 tonnes of silver in 2009, down 58% from a year ago period, its gross imports jumped 15% to 5,159 tonnes in 2010.

"By December 2010, China had imported 303,362 kilogram in one month alone. In comparison, the net monthly import was 90,476 kilogram in December 2009. This shows the massive jump in demand,'' said another analyst.

Currently, industrial use accounts for 44% of worldwide silver consumption and in conjunction with investment and store of value demand, demand for silver is set to climb further, traders state.