Asiatic Sourcing Blog

Fabrication Demand Boosts China to Largest Silver Market Status

china ecomomy

The Silver Institute based in Washington D.C. has issued a report stating that China is now the largest silver supplier to the world market. Demand for Chinese silver in futures, personal investment, and manufacturing use jumped by over 100 Moz (million ounces) within the previous 10 years with 2011 producing a record demand of 170.7 Moz.

China recognized its silver potential early on and began opening up investment opportunities in 2000 to allow more sellers of silver to hook up with silver buyers wanting to buy from China. Then, in 2009, the Chinese placed bars of silver bullion on the market and within a two-year period investors snatched up over 17 Moz of silver coins and bars, according to a Reuters report.

Two other driving factors in the rise of the country’s silver dominance are the country’s increased infrastructure investment and demand from China manufacturing sectors, both of which require large amounts of silver to complete their objectives. Over the past decade, there has been a 77.1 Moz increase in the amount of silver required for fabrication due to a continuous 135 percent growth in the industrial manufacturing sector.

The largest share of that growth came from the electronics and electrical components sector, mainly via the demand through China sourcing for semi-conductors, with a 2011 increase to 40 Moz compared to a 2002 consumption of only 17.1 Moz. Silver applications in the industrial sector that have seen large increases in computer and cell phone demands accounted for a 2011 increase of 56 percent in those areas of fabrication that required 159.5 Moz.

Other manufacturing drivers that are responsible for the sharp demand in silver and its subsequent rise in value are increased demands for China products like personal electronics. The leaders of such consumer-desired items have included televisions containing backlighting of LEDs (light emitting diodes) and tablet computers made by companies doing business in China as well as internationally.

In May of 2012, China sought to provide further direct market access by offering silver contracts on the Shanghai Futures Exchange. These contracts specified 15 kilos as the standard trading units with a 5 percent high or low daily price limit from closing price of the previous day. This was for the purpose of providing a hedge to domestic investors as well as set a pricing standard and ease silver volatility in the market.

Since the introduction of silver, Shanghai Futures Exchange has catapulted to the second largest silver futures trading exchange in the world. New York’s Comex is the only other market remaining ahead of them.

A large portion of the success of the Shanghai exchange stems from a brokerage services being offered by a growing number of commercial banks to their clients. Also, providers of wealth management services are more frequently recommending silver as important inclusions in portfolios as silver is considered to have better leverage than gold.

By the end of 2011, China’s global supply of silver increased to 281.5 Moz which is 14 percent of the world market. That is up from 94.2 percent which the country held at the ending of 2002.

During the same period, global demand for Chinese silver rose by 154 percent to 170.7 Moz ending 2011 from 67.1 Moz ending 2002.

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