Silver Sales Setting Up For Another Big Record Year

With the paper price of silver now below the break-even for the majority of the primary silver mining companies, India imported a massive 1,243 metric tons of silver in October alone.  What is quite interesting about this figure is that it comes in at one metric ton shy of the previous record set in May, 2011 at 1,244 mt (Source: Koos Jansen article).

Why are these two records interesting?  Because, the huge imports in October were a result of a new low price in silver, while the record set in May took place when silver was at the opposite all-time high.  When the price fell like a rock in May, 2011 (from a high of $49 after 5 consecutive CME Group margin hikes), investor in India thought this was a great bargain.

Of course, the Fed and Central Banks had another plan for gold and silver… three years worth of gut-wrenching declines.   Total Indian silver imports in 2011 were 4,120 metric tons (mt).  As the price of silver continued to drift lower, demand for the shiny metal in India declined significantly in 2012 to a mere 1,922 mt.

Well, it doesn’t take Indians too long to figure out a good deal when they see one.  So, in 2013 when the paper price of silver dropped off the proverbial cliff from $32 in February to under $20 by June, Indian silver demand increased dramatically.  Not only was 2013 a robust year for Indian silver imports…. a staggering 5,819 mt, it blew away its previous record set in 2008 at 5,049 mt.

According to Koos Jansen’s recent article, India: Massive Silver Imports And New Gold Restrictions May Represent The Turning Point For Silver:

Data through October shows total imports are now at 5,535 tonnes. With two months remaining, it seems certain that 2014 will mark a second consecutive year of record Indian silver imports.

With strong demand in October, Indian imported 5,535 mt of silver year to date, with two months remaining.  If we look at the chart below, India would only need to import 285 mt of silver to surpass 2013’s record:

If India imports a conservative 350 mt of silver for each of the remaining two months, that would be a little more than 6,200 mt.  However, if silver imports remain strong at 500 mt each month, then we could see a total of 6,500 mt for 2014.

This is a big number and it represents nearly 25% of total global silver mine supply estimated to be 27,000 mt in 2014 (Thomson Reuters GFMS).  For sake of comparison, the United States imported a total of 5,080 mt of silver in 2013 (USGS Silver Mineral Industry Surveys).  Here was the breakdown:

U.S. Silver Imports 2013

Bullion = 3,830 mt

Dore’ Bars = 1,190 mt

Ores & Concentrates = 56.5 mt

Grant Total = 5,080 mt

In 2013, India imported 5,819 mt of silver and the United States imported 5,080 mt for a total of 10,899 mt or 42% of total global silver mine supply in 2013.  As of July this year, the U.S. imported 2,840 mt of silver.  Unfortunately, the USGS is a little behind in reporting their figures.

I would imagine total U.S. silver imports may only reach 4,600-4,800 mt this year.  If we go with 4,700 mt of U.S. silver imports for 2014 plus the estimated 6,500 mt of Indian silver imports, that would equal 11,200 mt… or 300 mt more than the total of these two countries last year.  With  the forecasted global mine supply at 27,000 mt for 2014 (GFMS), the U.S. and India would still import 41% of this world total.

As I mentioned in my article, BREAKING: Significant Drawdown Of U.K. Silver Inventories Due To Record Indian Demand:

Indian silver demand was so strong this year, that it produced a significant drawdown of U.K. silver inventories. Matter-a-fact, India had to access silver from China and Russia because available supplies from the U.K. were not sufficient.

According to GFMS Silver Interim Report released on Nov 18th:

Meanwhile demand for silver bars and coins has soared in recent weeks as bargain hunting retail investors returned to the silver market after a disappointing first half of the year. Nowhere is this more evident than in India where imports of silver are up by 14% year-on-year for the January to October period and set for an annual record. With imports in the first ten months totalling a massive 169 Moz many vaults in the UK, traditionally the largest supplier to India, have seen significant drawdowns, leading to more supply flowing from China and Russia.

As we can see, Indian silver demand has put severe stress on the United Kingdom — the world’s leading clearing center for silver delivery.  It will be interesting to see how this supposed tightness in the global silver market unfolds heading into 2015.

We must remember, India imported a record amount of silver (5,049 mt) in May 2011, when the price fell to a low of $32.50 on May 12th, from a high of $48.70 on April 28th…. less than two weeks before.  This  was a staggering 33% decline in just 7 trading days.

I actually believe the Fed and Central Banks are more concerned with the price of silver than gold.  Gold doesn’t have the sort of industrial consumption as does silver.  If physical silver investment demand were to get really out of hand, it would totally destroy the NORMAL SUPPLY & DEMAND situation the world has enjoyed over the past three decades.

Right now, India is taking advantage of the extremely low price of silver by importing a record amount of the metal.  However, they also purchased the most ever in one month (May 2011 at 1,244 mt) when the average price of silver was $20 more an ounce than it is today.

So, what happens to Indian and global silver demand when the U.S. Dollar finally heads into the toilet?  $50 wouldn’t seem so crazy then… would it?

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