High silver exports, solar demand slim China’s supplies

China is facing a shortage of physical silver amid record-high exports of the precious metal and high demand for its use in solar panels.

Stockpiles of silver on Chinese exchanges have dropped to their lowest level in a decade, creating a situation of “backwardation” on the Chinese market where silver futures prices are lower than the current spot price, BMO Capital Markets analyst Helen Amos said in a note on Thursday. That’s happening as large amounts of silver are being shipped into the London market.

“Inventories in warehouses linked to the Shanghai Futures Exchange recently hit their lowest level since 2015, while silver inventories on the shanghai Gold Exchange are at their smallest level in more than nine years,” Amos said.

Silver exports soar

Chinese silver exports jumped to more than 660 tonnes in October, the highest amount on record.

Meanwhile, physical tightness, or the shortage of deliverable physical metal relative to demand, saw silver outperform gold this past week, as spot silver gained 6.2% compared to 2.2% for spot gold. Silver traded for $53.21 per oz. on Thursday morning. The precious metal has risen 80% year to date, while gold has climbed 57% and reached a historic high of $4,356 per oz. in October. 

Brilliant demand

Intensifying the silver shortage is a spike in demand from the solar panel industry, with installations of new solar capacity in October rising 30% to 12.6 gigawatts from September, Amos said, citing data from China’s National Energy Administration.

Installations jumped in the first half of the year as developers worked to get ahead of a shift to market-based pricing in June, before they decreased over the summer. Despite that, installations gained 39% year over year in January-October and are expected to reach 277 GW if the pace keeps up to year-end.

Some analysts have forecast that solar installations could get closer to 300 GW this year, according to Reuters.

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