The global silver market faces a fresh risk after Chinese stockpiles sank to the lowest in a decade, with a huge volume recently shipped to London to ease a squeeze that drove prices to a record.
Inventories in warehouses linked to the Shanghai Futures Exchange recently hit the lowest level since 2015, while Shanghai Gold Exchange volumes are back to the smallest in more than nine years, according to bourse and brokerage data. The drawdowns came after Chinese exports of the precious metal surged to more than 660 tons in October, the highest volume on record.
“The tightness stems from rising exports to London,” said Zijie Wu, an analyst at Jinrui Futures Co., who also cited industrial and fabrication demand. The shortage may ease in about two months, he said.
Silver has had a tumultuous year, with prices rallying 80% to a series of highs. The spike came as gold surged, and traders also wagered that the Trump administration may introduce a tariff on the cheaper metal. That pulled silver into the US, tightening the London market just as Indian demand boomed, triggering a historic squeeze. Now, the slump in Chinese holdings means the country may not be able to provide a backstop in the near term.
“If silver is tariffed, then it will lock up the silver that has already made its way to the US,” said Daniel Ghali, commodity strategist at TD Securities. “If that were to occur while Shanghai markets are still reeling from the last instance in which they backed up London, then the impact will be significant.”
Reflecting the tightness in China, near-term silver prices have topped later-dated contracts in Shanghai, a pattern known as backwardation that signals short-term pressure. Given the low inventories and so-called inelastic — or sticky — supply, concerns remain elevated , according to Jinrui Futures’ Wu.
One the demand side, Chinese consumption of silver for photovoltaic components — one of the metal’s primary uses — has risen. “The fourth quarter is typically peak season for solar installations,” Wu added.
In an unintended twist, a recent tax revamp has also spurred demand. New rules ended a long-standing rebate on input value-added tax for some gold sold outside exchanges, prompting some retailers to switch to silver.
The impact can be seen in Shenzhen’s sprawling Shuibei market — where many transactions had traditionally involved non-exchange gold. “Many merchants are uncertain how to price their products after the new rules,” said Liu Shunmin, head of risk at trader Shenzhen Guoxing Precious Metal Co. “So some shifted focus to silver, especially if they already have some silver business.”
Spot silver traded above $52 an ounce on Wednesday, after rising more than 1%.
Outside China, silver-market liquidity remains a concern, with borrowing costs still elevated in London despite a record inflow into the UK capital. Traders are also monitoring any potential US tariff on silver after the precious metal was added to the US Geological Survey list of critical minerals.
“Most of the physical demand today for silver out of London is associated with pure speculative demand,” said TD Securities’ Ghali. The volume in exchange-traded funds — which typically can’t be lent out — has held firm, with no major redemptions even after prices eased from their recent record.
For now, traders can put some hope in China’s off-exchange stockpiles, according to Ghali. “Quite possibly, the backwardation will drive inventories back to the exchange,” he said. “It remains unclear how much of the invisible inventory there is in China. By many accounts, it is likely quite large.”
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