What Do China’s Silver Imports Really Mean

Analysts at Barclays Bank recently noted that silver imports were down 28% in the month of April year on year. Of course, if you take a myopic view, then these assumptions are correct. However, just because trade between China and the rest of the world is down does not mean that silver demand is down. What it does reveal is a decrease for external demand from the Chinese market. China still remains a net importer of silver, even with exports up of silver products.

In 2011, the Chinese government incentivized the mining industry in an effort to get off of dependence for base metals from foreign countries. China has experienced growth as high as 10.4% over the last four years. In 2011, a 9.3% growth demand for metals and minerals for construction and industry grew exponentially as well. China is the number two industrial consumer after the U.S.A.

In an effort to reduce costs, China made investments in the mining and smelting sectors. According to a Thomson Reuters GFMS report for the Silver Institute, production at China’s copper, lead and zinc mines were estimated to have increased by an average of 57% in 2011. This is significant to silver as opposed to the average world supply, where silver is mined 71% of the time as a byproduct of other metals.Tthe figure is much higher in China at around 95%.

So logically, if the production of base metals increases, then production of domestic silver will increase as well.

According to the US Geological Survey, China’s direct mine production was up 100 metric tons from 2011 to 2012. The drop in April 2013 signifies approximately 48 tons of silver. Obviously that looks like it represents nearly 50% of the increase of supply. But the mining supply continues to grow. As reported by Thomson Reuters GFMS, the Ying operation completed a mill expansion in mid-2012 that increases their operating capacity by nearly 25%. Other dedicated silver miners such as Minco and Silvercorp may come on board.

The increased technological advances in the mining and refining fields are improving their efforts at recovery as well. The U.S. Geological Survey estimated that at the end of 2011 China had the fifth largest reserves of silver worldwide after Peru. It is no wonder that this country could become self-sufficient in silver.

Not only will China continue to grow in the industrial, electronics and jewelry sectors but also in the retail investment sector. In 2011 they represented 8% of global net purchases for silver bars and coins. This as relative newcomers to physical bars as they only became available as of July 2009.

So the truth is they still imported 5.5 million ounces in April 2013 according to Mu Li, a commodity analyst at CPM Group. That is still a lot of metal, and it is not going to disappear overnight. As China’s population continues to prosper, all things of value will be in demand. Silver, which is an important component for many products, is a beautiful jewelry metal as and a great way for investment diversification for the people of China. It will not lose it luster anytime soon.