Common man sees no silver lining in silver

Import expected to decline over 60% this year due to record high prices.

Silver is moving away from the common man’s reach as the metal continues to set new benchmarks almost everyday.

Once considered as an adequately available cheap substitute to gold, silver has gradually become dearer. Last Friday, the grey metal hit an all-time high of Rs 33,055 per kg. The metal not only broke a three-decade record to trade at $20.685 an oz globally, but also reported a 23 per cent rise in price in rupee terms this year. Hunt Brothers cornered the metal, which lifted price to an all-time high of $48.70 an oz in January 1980.

 

Accordingly, Indian consumers have changed their buying strategy from frequent buying to occasional booking. And if the trend continues, they may abstain from fresh orders totally.

As a consequence, silver sales in India are estimated to decline dramatically. During the one-and-a-half month of festive season ending Diwali, traders used to sell nearly 1,000 tonnes silver. But this year, it is expected to fall below 100 tonnes due to lack of consumers’ interests. “Buyers are totally absent today. They await price correction,” said Suresh Hundia, president of the Bombay Bullion Association (BBA).

While until last year, India used to import 4,000 tonnes silver annually, this year, it is estimated to decline over 60 per cent to about 1,500 tonnes.

“This is not a one year phenomena. If price continues to remain high, consumers will slowly move out,” said Hundia.

India’s silver demand is estimated at 5,000 tonnes. Of this, import and recycled silver account for 79 per cent and 18 per cent, respectively. The rest three per cent is shared by Hindustan Zinc (2.5 per cent) and Hindalco (0.5 per cent).

According to the latest analysis by David Levenstein, a global precious metal analyst, many believe demand from investors and industrial uses has helped to bolster silver prices this year. Industrial demand has increased, especially demand from the electrical industry, which has ballooned by nearly 25 per cent in the past year alone.

While India is traditionally viewed as the centre of the world as far as physical gold demand is concerned, it is quickly becoming recognised for its strong role in the silver market as well. Rising gold prices are good for silver in this region of the world as would-be purchasers of gold jewellery and bullion turn to the grey metal as a cheaper alternative during the festival and wedding season. Of the 4,000 tonnes that India used to import annually, around 2,600 tonnes was used to make jewellery and ornaments, the report said.

More than 60 per cent of India’s silver demand comes from farmers, who store their savings in silver bangles and coins. Due to one of the worst monsoon seasons in more than forty years, the demand for silver last year fell dramatically. But this year, thanks to a good rainy season, the situation has changed completely.

India’s silver imports in the first six months of 2010 are up by 579 per cent at $1.69 billion.

Meanwhile, Barclays Capital has estimated that the amount of silver used for fabrication will rise 5.4 per cent from a year ago, not enough to soak up silver supplies on its own. By the end of this year, traders estimate a surplus of 4,480 tonnes of silver, as production from mining and recycling outstrips demand.