Silver import could fall to 5-year low as note ban hits demand

Purchases from overseas plunged 60% to about 3,000 tonnes last year & would contract further in 2017

Silver import by India, one of the world’s top buyers, will probably shrink this year to the lowest since 2012 as the government cracks down on undisclosed money, farmers struggle for cash and stockpiles remain ample.

According to Chirag Sheth, an analyst at Metals Focus, an independent precious metals research firm in Mumbai, purchases from overseas plunged 60 per cent to about 3,000 tonnes last year and would contract further in 2017.

Demand for jewellery has suffered after Prime Minister Narendra Modi scrapped high denomination notes in November last year to clamp down on the black market and bring more transparency to the financial system. That hit the rural economy, which depends more on cash than urban areas, and hurt the demand from farmers. Inventories were ‘sizeable’ after record imports in 2015, Sheth said.

“Investment demand for silver will continue to fare badly and we wouldn’t be surprised to see a 10 to 12 per cent drop this year,” said Sheth, who has track precious metals for 13 years.

Compiled by BS Research Bureau

On the global market, investors have shown interest because of rising political risk. Assets in exchange-traded funds rose in February for the first time in four months, while funds and other speculators almost doubled net-long bets on the Comex this year.

While prices have been rising, they’re way below the peak in 2011 and haven’t even caught up with the highs last year. Futures in Mumbai have climbed 11 per cent in 2017, but are still about 10 per cent short of levels in July. 

“Prices have not been able to sustain at higher levels and investors who currently hold the metal will look to book profits if they go up further,” Sheth added.

Forced purchase

Silver is so ingrained in Indian tradition that the country’s currency, the rupee, is named after ‘Rup,’ the Sanskrit word for silver. The metal is popular in rural areas where it’s viewed as the poor man’s gold because it’s quite cheaper than its fellow metal and women prefer to wear it on their feet, keeping gold for hands, neck and ears. Farmers have been finding it tough to buy bullion because of lack of money.

“Silver or gold buying is a forced purchase for us as we have to send our daughters to their in-laws house with a good face,” said Samarpal Singh, a 50-year-old sugar cane farmer from Uttar Pradesh. “We barely have any savings as we don’t get timely payments for our crops and many farmers resort to taking loans from banks for buying jewellery for their children’s weddings.”

India imports most of its silver, from places including the UK, mainland China and Hong Kong. Locally, Hindustan Zinc produces about 400 tonnes annually.

“In the last six months, the silver market has become very quiet and there are hardly any sales,” said Suresh Hundia, owner of Hundia Exports and former president of the India Bullion and Jewellers Association. “Jewellers have enough supplies and some of them are even using their products to trade on the future exchange because of lack of physical buyers,” he added.