China and silver
The silver shortage is a clash between industrial and investment demands. Markets have relied on China’s exports, now likely being withdrawn leading to significantly higher prices.
We are beginning to see the initial consequences of a clash between industrial use and investor demand for silver. Global mine supply has declined moderately over the last decade, partially made up by an increase in scrap supply. This has led to supply deficits over the last five years, and allowing for net investment in exchange-traded funds we are heading for the eighth consecutive year of deficits.
These estimates are compiled by Metal Focus for the Silver Institute. But we are left wondering whether they actually capture the full demand picture, particularly the use of silver in photovoltaics. Presumably, use of silver has become more efficient over the last decade, but does an increase of only 21% for total industrial use since 2017, and a decline of 2.7% since 2023 really tell the whole story?
India has stepped up her demand to an estimated 7,000 tonnes last year as well, compared with about 4,000 tonnes in 2024. Both China and India are now seeing investment demand increasing, not just because Asians generally have a greater acceptance of silver as sound money, but they see it as a cheap alternative to gold.
Increasingly, the picture is one of strong industrial demand coupled with growing coin and bar demand against a background of stagnant supply. To try and assess the seriousness of this dual demand squeeze, we need to look at it from China’s viewpoint because it has been her policy suppressing the silver price until recently.
As the second largest producer of silver, China has been drawing down on stocks to satisfy Western industrial demand. That is coming to an end and the market is now tightening.
