Sharp Spurt In Demand For Silver Boosts Prices; Supply Tightens

Local silver prices have risen sharply in recent days following a spurt in demand, and the trend is likely to continue, dealers and analysts said on yesterday. They said silver jewellers and fabricators, building up stocks ahead of the festival season.

Prices are expected to be firm in the next three months, said bullion analyst Madhusudan Daga. Demand is likely to strengthen later this month and peak at Diwali.He said demand for silver coins and mementoes to be given away as gifts during the festival had already begun.

But the general demand is for trinkets. Every Indian girl would like to wear them during a festival, he said. Daga said the most crucial factor to determine the bullion demand was the four-month June-September monsoon season. Its halfway through and, as of now, is not very satisfactory. We have to wait until September to see how it behaves. Rural demand for bullion depends mostly on its progress, Daga said In the last 10 days silver (.999) gained Rs 225 to Rs 6,550 per kg on the Bombay bullion market. After the relaxation of the bullion policy in recent years expatriate Indians are allowed to import 100 kg silver once every six months, subject to a duty of Rs 500 per kg.

Daga said the cost of imported silver, including the import duty and local taxes of around 2.5 per cent worked out to nearly Rs 6,500-6,600 per kg. There is hardly any profit margin on imports, he said. Why would anybody import silver?

Silver imports are required to meet demands and domestic production is marginal. Bullion traders said, silver imports rose in `96 to 3,225 tonnes from around 2,900 tonnes last year. The local taxes are a big burden, especially when world prices are up because importers were operating only on a profit margin of 0.5 per cent, said bullion dealer.

The rupees fall in the last two days had firmed market sentiment for silver. In London on Wednesday, silver slipped through the $4.50 to $4.55 per ounce price range of the past few days but was well within the $4.40-$4.60 price band.