China bypasses the Comex to buy silver directly at the source

Mexico, Peru and Bolivia are important silver producers. The silver extracted from their mines is mostly processed domestically into a high-quality silver concentrate and then sold on to smelters and refineries around the world for further processing.

The aim of the smelters is to always have enough raw material available to be able to operate their furnaces at a constant rate, as constantly ramping the furnaces up and down is ineffective and therefore expensive. The price of the material does not play a decisive role up to a certain point, because being able to continue production is usually more advantageous than achieving favorable metal prices.

In order to ensure the capacity utilization of their furnaces, Chinese smelters have recently started buying concentrate from Mexico, Peru and Bolivia at prices above the spot price. In doing so, they are bypassing the traditional silver trading platforms on the commodity futures exchanges. Many industrial consumers, who are used to covering their silver requirements here, are now losing out.

Silver consumers in the West are left behind

Not only do they have to make do with higher silver prices, but they are also likely to have greater difficulties in obtaining the desired silver in the required quantities. With its silver concentrate purchases, China is not only bypassing the pricing on the established metal exchanges but is also forcing Western companies to take a back seat.

In China, it is well understood that silver is currently an extremely scarce commodity. In recent years, the country itself has invested heavily in the development of industries that have a high demand for silver. The manufacturers of solar modules and electric vehicles are particularly worthy of mention here. They are not only important customers, but also a deliberate part of the country’s economic strategy.

If the Chinese ensure that their companies can continue to produce by paying surcharges, they are simultaneously harming the military-industrial complex in the USA, as this is also absolutely dependent on having sufficient silver available. However, the more silver disappears in Chinese solar module production or in the manufacture of electric vehicles, the less silver remains for the US weapons industry.

Will the desire to safeguard production one day turn into panic?

By purchasing silver directly from the sources in Mexico, Peru and Bolivia, China is also strengthening its position within the international supply chains, while at the same time weakening the position of the USA and the West. This aspect should also be expressly desired.

Even if the Chinese direct purchases have not yet had an impact on spot prices, they nevertheless illustrate the dynamics currently inherent in the silver market. China’s own silver production is declining, while demand for silver from its own industry is growing steadily.

The country is therefore aggressively securing further supplies in order to be able to continue production in any case. If other countries adopt similar strategies in the near future, the silver market could soon become very uncomfortable as everyone fights against everyone else.