Silver’s Supply and Demand in China

From runredhot.com:

Importantly and unknown to most analysts and people in the world is the fact that China was a net exporter of silver for many years – indeed China was a major component of global silver supply. This changed in 2007 when China became a net importer of silver.

The demand figures released by the General Administration of Customs in China overnight show the massive turnaround in China from large silver exporter to large silver importer.

China has gross exports of 1,575 tons of silver last year, down 58 percent from a year earlier, said customs. China’s gross imports of silver increased 15 percent to 5,159 tons in 2010, the customs agency said.

A longer term perspective is as ever important as are the net figures.

In 2005, China was a net exporter of nearly 3,000 tonnes (3 million kilogrammes) of silver. Last year, in 2010, China imported more than 3,500 tonnes of silver.

Incredibly, Chinese net imports of silver surged four fold in just one year from 2009 to 2010 (see table above).

Demand for silver in China has risen sharply in recent months and years. Growing middle classes and savers in China, India and other Asian countries have been turning to “poor man’s gold” and using silver as a store of value. Gold has risen above its historical nominal high in local currency terms internationally and silver is seen by many as a cheaper alternative.

Today buyers in China, Asia and internationally can buy some 50 ounces of silver for every one ounce of gold. The gold silver ratio today is 49.3 (gold at $1,342 per ounce divide by silver at $27.20 per ounce) meaning that 49.3 ounces of silver can be bought with every one ounce of gold.

Gold is increasingly unaffordable to the “man in the street” in China and wider Asia and this is leading to increased purchases of silver as a store of value, rather than gold. With the price of gold set to remain high in the coming years, this will continue.

Chinese and most Asians have experienced the decimation of their life savings through currency debasement and hyperinflation and unlike westerners understand the importance of owning gold and silver.

Besides huge demand for silver as a savings vehicle and a store of value in China, there is also very significant industrial demand in China and internationally.

There remain a huge range of industrial applications for silver. While demand from the photography sector has declined, demand from the medical, solar energy, water purification and many other sectors continue to rise significantly.

Today industrial uses account for 44% of worldwide silver consumption and in conjunction with investment and store of value demand, industrial demand continues to grow.

Conclusion
Investors and savers in the western world should familiarise themselves with monetary history and why paper currencies always depreciate over the long term and why gold (and also silver) are vital in order to protect and preserve savings and wealth over the long term.