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Thursday, March 10, 2016

Global Demand and Silver Rates in India


The old truth of the relationship between supply and demand and its effect on the price of commodities also affects the prices of silver in India. There are many countries in the world that produce silver and India is one of them, however if you look at production charts, you will realise that India is not even close to being the largest producer of silver. The top producers of silver are actually Mexico, Peru and China, in that order. Each of these countries produced 115 to 118 million ounces of silver in 2014 while India produced only 10.7 million ounces, putting it in 16 place among the top 20 producers of silver. This is one of the main reasons why we import silver. Government records show that India imported close to 7,700 metric tons of silver between 2014 and 2015. So where does this demand come from?

While many would believe that the demand for silver is generated mostly by the need to use it as jewellery, the fact is that the biggest demand for silver is actually from the industrial sector and only a small percentage of this demand is actually generated by the want for jewellery.

Of the global product of about 27,277 metric tonnes India can be expected to consume almost 33%, which leads to the question about silver rates in India being directly affected by the global demand. To understand that let's take a look at it in more detail.

Global Demand for Silver

In 2013 77% of the demand for silver was generated by industrial demands and the remaining by investment demands. Contrary to popular belief, the largest demand for silver is generated by the industrial sector, approximately 56% (in 2014), and a vast majority of this silver is actually produced in the form of bars and coins. In the year 2014 a total of 27,277 metric tonnes or 877 million ounces of silver was produced, of which India consumed about one third. The demand generated by industrial sector in 2014 was lower by 0.5% as compared to 2013. Even the demand for silver for photography came down by about 5% while the demand from the jewellery industry rose by 1.5%. The bigger consumers, ethylene oxide producers increased their demand by 6% and demand from producers of photovoltaic products rose by 6%. In the year 2015, the demand for silver is expected to grow and it is also expected that there may be a deficit of 57.7 million ounces in the supply.

Price of Silver in India 

Over the past 2 to 3 years, the price of silver has seen a steady decline even as demand for silver has risen. Towards the end of 2013 the prices of silver were closer to Rs. 44,000 per kg but in November and December they fell to about Rs. 38,000 per kg. They remained the same throughout January but in February and March of 2014 then soared back to about Rs. 44,000 per kg but from then till June 2014 they came down to less than Rs. 36,000 per kg and then peaked at Rs. 42,000 in the following month. And that, till September of 2015, has been the highest they ever went to. For the second half of 2014 and the first half of 2015 they kept falling to hit a low of below about Rs. 30,000 per kg and then rose to about Rs. 33,000 per kg in September 2015. Basically silver has been getting cheaper for the past two years and is now trying to claw its way back up.

Effect of Demand on the Price of Silver in India

The age old relationship between prices, supply and demand says that the current situation is one where the supply is marginally high but the demand is much higher so ideally speaking the prices should go up but they are not. Even when the demand increased between 2014 and 2015, the prices of silver kept falling. It has been estimated that this is because of market manipulation. Predictions made by analysts have even said that the price of silver might remain in its current band for the duration of 2015 and 2016 with a slight improvement in prices over these two years.

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