China reaches for silver – Will the rest of the world be left holding the bag?

China’s silver imports have risen to over 9,000 tons per year. This is a breathtaking figure, especially when you consider that China itself is one of the world’s largest silver producers. Nevertheless, in addition to domestic production, more than 9,000 tons of silver have to be imported from abroad to meet the People’s Republic’s demand.

In recent years, demand for silver in Chinese industry in particular has exploded. The new electroplating industrial park built in the city of Zhejiang Yueqing alone has an annual silver demand of 2,000 tons. It therefore represents the tip of the iceberg of silver demand from Chinese industry and is a kind of metaphor for it.

With its high import volume of silver, China is not only catching up with India. The high demand for silver also reflects the country’s technological progress and its industrial ambitions. At the same time, the many industrial applications of silver are becoming clear. It is required in a range of manufacturing processes and is an indispensable raw material, especially for cutting-edge technologies.

Demand for silver from India and China will remain high in the long term

Anyone who believes that the rise in Chinese silver imports is just a statistical anomaly is mistaken. This level of consumption will become permanent in the future. China has therefore taken decisive measures to cover the silver requirements of its industry in the long term. For example, the country conducted direct negotiations with Peru, another important silver producer. The high-ranking Chinese delegation was led by head of state and party leader Xi Jinping.

This small but not insignificant detail makes it clear how important a secure supply of silver is for China’s own industry. For China, it is not just a question of current demand, as the country is also building up large stocks. Hengtong, for example, has 3,000 tons of gold and 10,000 tons of silver.

This means that Hengtong’s gold holdings are only around 400 tons less than those of the Bundesbank. As gold is not in industrial demand anywhere near as frequently as silver, the high gold holdings can also be seen as a clear statement of financial foresight and independence.

Will the rest of the world soon be looking down the tube when it comes to silver?

The effects of the high Indian and Chinese demand for silver will soon be felt on the international markets, as there are no large stocks to fall back on when needed. When it comes to silver, the situation is now more a case of the world living from hand to mouth. Learn more here

Around three quarters of the silver mined worldwide is extracted as a by-product. For the operators of these mines, this means that other prices, such as the price of gold or the prices of the base metals lead, zinc and copper, are much more important than the price of silver. Or to put it another way: the zinc price is of particular interest to a zinc mine. If it falls because there is less demand for zinc during a recession, the price of silver can explode and triple or quadruple. Nevertheless, nobody in this zinc mine will think of increasing their own production.

Investors should bear in mind that the increased demand for silver is not an Indian or Chinese phenomenon. It can be observed worldwide because more and more industrial applications require silver. Within the individual application, the demand for silver is manageable, but silver cannot be replaced by another element. This means that demand for silver is very inelastic and it can be assumed that it will remain high even in a recession.