China Now World's Largest Market For Silver Investment

In spite of rapid development in the Chinese silver market over the past decade, both silver demand and supply are expected to achieve further growth, says a Thomson Reuters GFMS study released Thursday by the Silver Institute.

In 2011, China’s demand for silver bars and coins soared to 17 million ounces, accounting for 8% of worldwide net purchases of physical silver.
The report, The Chinese Silver Market, forecasts growth in China’s domestic silver mine production over the next couple of years. “This growth is premised on a strong project pipeline from primary silver mines, coupled with ongoing gains in silver produced as a by-product of base metals and gold mining,” said the study. “Gains will be further augmented by a greater degree of commercialization and consolidation across the Chinese mining industry.”

Meanwhile, investment demand from Chinese silver investors has jumped in recent years, making China the world’s largest market for both physical investment and paper trading of silver future and other similar contracts, says the study.

Thomson Reuters GFMS’ analysis determined China’s supply of silver has grown to 281.5 million ounces between 2002 and 2011. “This rapid expansion was due to a combination of, firstly, substantial economic growth during this period (GDP growth has averaged 10% over the last 10 years), igniting industrial development, and secondly, rising commodity prices which helped accelerate exploration, development and, in turn, mine output.”

The third source of supply is imported silver bullion with the final contribution made by silver recovered from imported base metal concentrates, mainly a by-product of copper, lead and zinc production.

The report discusses four mains components of Chinese silver supply, including mine production, which last year recorded an increase for the ninth consecutive year to reach 104.6 million ounces. Secondly, domestic scrap supply has been rising steadily as Chinese industrial fabrication increased to 31.9 million ounces of silver last year.

MINE PRODUCTION

Continued investment by larger, state-owned Chinese mining companies has continued to yield productivity and output expansions, both through the development of new mines sites, and the modernization of equipment and processes at existing sites, Thomson Reuters GFMS observed. “We also estimate that exploration spending in China remains elevated, with the larger miners undertaking aggressive exploration programs in country.”

The biggest slice of industrial demand has come from the electrical and electronics sector, estimated at 40 million silver ounces in 2011.

In the meantime, China has become the world’s largest silver jewelry fabricator. “Looking ahead, we expect to see further growth in jewelry fabrication volumes in coming years,” the report advised. “Ongoing urbanization should fuel the expansion of retail outlets and lift the exposure of silver as fashion jewelry alternative.” The report also suggested that as western economies recover, further gains in Chinese jewelry fabrication will be achieved.

“This has propelled China into becoming the world’s second largest silver fabricator, with its share of global demand standing at 17 percent at the end of 2011.” Overall, silver fabrication demand has grown to 159.5 million ounces or 137% from 2002-2011, Thomson Reuters GFMS estimates.

“This report underscores China’s growing importance to the global silver market,” said Michael DiRienzo, executive director of the Silver Institute. “It is impressive to see the dramatic development in so many sectors of their domestic silver market in the last decade.”