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Silver Trade Drops 30% on China Bourse as Industry Use Falls

Silver trading on the largest spot market in China, the second-largest consumer, tumbled this year as slowing growth cut industrial use, said a bourse official.

Volume on the Shanghai White Platinum & Silver Exchange dropped about 30 percent from a year earlier to 1,000 metric tons, said Gao Huijie, chief executive officer. Industrial demand represents most transactions on the bourse, where about 20 percent of China’s annual demand is traded, he said.

Silver, this year’s best performing precious metal, has increased 19 percent in 2012 amid investor demand for a hedge against inflation. China’s economy, the world’s second biggest, decelerated for seven straight quarters through the end of September to 7.4 percent, the slowest pace in three years.

“This year is shaping up for a slowdown as we’re still in the middle of a de-stocking process along with weakening physical demand,” Gao said. Trading on the Shanghai-based market is a gauge of physical demand because transactions result in spot delivery, he said.

About 67 percent of the country’s demand comes from industrial use in photography, solar and electrical appliances, according to Beijing Antaike Information Development Co.

China’s industrial demand for silver has usually grown at an annual 5 percent to 7 percent in the past few years, Gao said. Demand declined in the first nine months before stabilizing and showing some recovery since the start of November, he said.

Industrial Demand

The Shanghai Futures Exchange trades silver futures. The Shanghai Gold Exchange, affiliated with the central bank, is where silver for spot delivery and contracts for deferred delivery are traded, although “very few” physical transactions actually take place because of higher fees, Gao said.

Spokesman Gu Wenshuo at the Shanghai Gold Exchange couldn’t be reached in a call to his office phone.

While there are regional silver trading centers that offer spot transaction services and where local producers and users gather to do business, their volume is smaller, Gao said. Companies can sell directly to each other, though Shanghai White Platinum & Silver Exchange trading offers pricing transparency and quality control to users, Gao said.

The exchange has 252 institutional members including some of the largest silver producers such as Jiangxi Copper Co. (600362) and Henan Yuguang Gold & Lead Co. (600531) The bourse publishes two price fixings a day, one in the morning and another in the afternoon.

Silver on the exchange was fixed at 6,715 yuan ($1,078) to 6,745 yuan a kilogram this afternoon, while the most-active contract on the Shanghai Gold Exchange traded at 6,786 yuan.

“The situation next year depends on global silver prices, the macro-economy and whether China and the world can speed up the growth engine,” Gao said.

International silver prices have climbed almost fourfold to $33.085 an ounce today from a low of $8.4587 in October 2008, at the time of the global financial crisis. China was the world’s second-largest silver consumer in 2011 after the U.S., according to the Silver Institute.

To contact Bloomberg News staff for this story: Feiwen Rong in Beijing at frong2@bloomberg.net

To contact the editor responsible for this story: James Poole at jpoole4@bloomberg.net

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