Silver inventories at designated warehouses of the Shanghai Futures Exchange and the Shanghai Gold Exchange have fallen to their lowest levels in over a decade. This trend is driven by persistently strong physical investment demand and concentrated purchasing from industrial sectors such as solar energy. Analysts suggest that unless smelters significantly ramp up production during the upcoming Spring Festival holiday, the tight supply situation is unlikely to ease in the short term, which will continue to impact industrial procurement costs.
While international silver prices have stabilized after a period of high volatility, supply constraints in the Chinese market persist, with both investment and industrial demand depleting existing stockpiles. On February 10, the international spot silver price hovered around $80 per ounce, and the gold-silver ratio remained near 61 times.
According to Bloomberg, the premium for near-month silver contracts on the Shanghai Futures Exchange has surged to a record high. This strong spot premium structure indicates intense demand for immediately available silver. Zhang Ting, a senior analyst at Sichuan Tianfu Bank, commented that such a significant spot premium is driven by inventory shortages and the depletion of deliverable materials. Financial institutions still have incentives to squeeze the market for profits.
Reports indicate that silver inventories at designated warehouses of the Shanghai Futures Exchange and the Shanghai Gold Exchange have dropped to their lowest in more than ten years. Since late December, short sellers have been forced to continuously pay延期 fees to long positions to avoid physical delivery, further highlighting the extreme scarcity of spot silver in the market.
Analysts believe this tight supply situation will be difficult to alleviate in the short term unless smelters undertake unusually high production increases during the Spring Festival holiday. Traditionally, the holiday period is a seasonal low for production activity. The ongoing supply strain is expected to continue affecting procurement costs for industrial users and position management for traders.
Demand is currently fueled by two main drivers: robust physical investment appetite and stockpiling by industrial consumers. In Shuibei, Shenzhen—China's largest gold and jewelry wholesale market—demand for silver investment bars remains strong. Liu Shunmin of Shenzhen Guoxin Precious Metals Company noted that available inventory sells out quickly whenever it arrives. Retailers can easily find buyers willing to pay a premium for these bars, though there are signs that speculative fervor may be easing ahead of the holiday.
Total open interest in silver contracts on the Shanghai Futures Exchange has fallen to its lowest level in over four years, as investors reduce their positions ahead of the Spring Festival break. This may lead to a short-term decline in price volatility, but the fundamental mismatch between supply and demand will likely persist until inventories are substantially replenished.
Industrial demand represents another significant factor. Chinese solar panel manufacturers require large quantities of silver in production. According to Jia Zheng, head of trading at Shanghai Soochow Jiuying Investment Management Co., many companies have taken advantage of recent price dips to make purchases. Additionally, to fulfill orders before the expiration of an export tax rebate policy on April 1, firms are front-loading production, which has intensified short-term concentrated buying.