Silver rebounds in spot market, quote at 3-4% premium on scarcity

Even silver micro futures with a lot size of 1 kg on the MCX, is quoting at a premium, indicating that market doesn't have enough floating stock of the white metal

Silver prices have rebounded from the low levels seen yesterday, with the metal commanding a huge premium following scarcity in the physical markets. Premium for spot delivery rose to around 3 to 4 per cent today.

The reason for this is that at lower prices, demand was quite high while supplies were limited. Even silver micro futures (1 kg) on the MCX, which can be used by retail investors to take deliveries, is quoting at a premium, indicating that market doesn’t have enough floating stock of the white metal.

There was a spurt in demand when silver was trading below Rs 34,000 per kg. However, dealers who had bought the metal when prices were high a week or two ago, preferred to hold their stocks till they could get a premium and curtail losses Imports too have reduced with major supplying nations facing Coronavirus-related challenges.

India usually imports about 6,000-7,000 tonnes of silver a year when prices are low. Over 500 tonnes are supplied by Hindustan Zinc. Supplies from other metal players and from scrap is limited. Imports began reducing after China declared a lock down in the second half of January, followed by similar moves by other producing nations such as Peru and Chile.

The UK, Hong Kong, Switzerland are among major suppliers and disruption in international trade has further dwindled India’s silver imports.

In first two months this calendar, silver imports were very low at about 250 tonnes. Around 600 tonnes were imported on consignment bases (bullion to be despatched and money to be paid to foreign supplying bank once it is sold). This was lying in the warehouses at Chennai port and Kandla free trade zone.

A few days back, the government reduced tariff value for silver from $533 per kg to $402 per kg. This comes to around Rs 34,000 per kg on which 12.5 per cent duty will be charged till the end of the month. Dealers were waiting for this reduction. This lot has been absorbed and stocked by large dealers and is being release very slowly at high premiums.

One importer said, “The pipeline is empty, floating stock in market is lower. We don’t see big imports happening in the near future and supply constraints could continue for a while.”

With demand rising, if prices also revert upward as indicated in Friday’s trade, some old stock may come out though current prices aren't lucrative enough.

“We see silver scarcity to continue and premiums quoted in the market for delivery are expected to go up further as global demand is also rising. We estimate that even in the current market senario, March quarter demand will be 1,000 tonnes,” said Debajit Saha, Senior Analyst, Precious Metals Demand, GFMS, India and UAE.