Silver demand and import in India decline, but price outlook bullish

India's demand has been muted especially since import duty was raised to 12.5 per cent last July

Unlike gold, silver may be facing headwinds in 2020 if the industrial slowdown persists and the coronavirus spread isn’t checked. However, the white metal is expected to rally in 2020. This may prompt India to import less silver during the year. 

Like gold, India has been importing less silver. Moreover, domestic demand is also falling and the old stock of silver is being sold in the market. If China’s situation worsens and hits global economies, it will have negative consequences for industrial metals, and, silver, in particular. 

Silver demand is mainly from industrial users who are reeling from a slowdown. And, if the outbreak in China isn’t controlled, it may lead to major consumers like India buying less silver. The flip side is seen from the perceived rally in gold price, which is hovering around $1,600 per ounce. It is expected to remain buoyant. 

Silver will be benefiting mainly from a positive spillover in gold gains. India’s silver demand has been muted, especially when import duty was raised to 12.5 per cent last July and prices started rising. 

As a result, total quarterly import of the white metal in India in the December quarter was just 500 tonnes. This figure is the lowest in many years.

GFMS’ India bullion analyst Debajit Saha said, “Imports in December 2019 nosedived by a whopping 79 per cent year-on-year (YoY) at 503 tonnes while gross demand contracted by just 9 per cent. The rising price provided an opportunity to investors to offload some of their stocks that they had purchased previously when the price was below Rs 40,000, bringing down the requirement for fresh metal from overseas.”

In 2018, silver import was 6,958 tonnes, which contracted and is estimated to be 5,700 tonnes in 2019. Saha added, “We expect imports to come down this year by at least 15 per cent from the 2019 levels. On the demand front, we expect gross demand to contract by around 5 per cent.”

He said demand could revive only if price in India falls from Rs 46,000-47,000 per kg level as of now to Rs 42,000. But that seems unlikely because silver prices are projected higher. 

The Silver Institute, a Washington-based industry stakeholders’ body said in its latest forecast, “Silver price in 2019 was up 4 per cent to $16.21 per ounce. The outlook for silver remains positive for 2020, with the annual average price projected to rise by 13 per cent to a six-year high of $18.40.” 

It highlighting the headwinds also. The institute added, “This rally is premised mainly on a positive spillover from gains in gold, as the yellow metal will continue to benefit from macroeconomic and geopolitical uncertainties across critical economies. Concerns about the state of the global economy will have possible negative consequences for industrial metals, and by extension, silver. However, the weight of institutional money flowing into a relatively small market should prove sufficient for silver to outperform gold. This could cause the gold:silver ratio to drop to the mid to high 70s later this year.”