MUMBAI: Silver imports are following gold in India. High prices, dull market conditions and re-cycling of scrap silver materials have led to a big fall in the imports of silver by India, one of the largest importers of the white metal in the world.
According to figures from the Bombay Bullion Association (BBA), India's silver imports in the first half of 2009 slumped to 54 metric tons. Silver prices in the India bullion market have risen by 25% since January, 2009 to Rs 22,740 rupees per kilograml.
BBA said ealier this week that India's gold imports could plunge by 50% in June as higher prices of the yellow metal and weak currency are prompting jewelry buyers and gold traders to stay away from the bullion spot market.
Gold purchases by India, the world’s biggest importer, were 8 to 10 metric tons in the first three weeks of June, compared with 17 to 18 tons for the same period in 2008.
India normally imports 100-300 tons of silver a month. Silver prices in India's main bullion market in Mumbai have risen by 25% since the beginning of 2009 to 22,740 rupees ($470.8) a kilogram currently.
India used to consume around 3,000-4,000 tonnes silver an year a few years back. India’s biggest demand for silver comes from rural India, where agricultural output is determined largely by the June-to-September monsoon.
But in 2008, silver imports by India plunged to about 2,000-2,500 tonnes. Traders and industry association leaders said that silver imports in the country continued to be dull for the last three months of 2009. “Demand for silver is very low these days. The main culprit is the high price of silver,” says Varun Shastry, a Mumbai-based silver merchant.
According to provisional figures from the Bombay Bullion Association (BBA), silver imports by India have plunged by at least 50% compared to previous years. Shastry, a bulk dealer in silver, says silver is following gold as far as imports are concerned. “But even though silver imports have almost halved, India continues to be the world’s largest importer and one of the biggest consumers of silver,” Shastry told Commodity Online.
Traders like Shastry say unlike in the European nations like Germany, in India bullion traders are shying away from silver because of the risk involved in it. India is still one of the largest users of silver in the world, ranking alongside Industrial giants like Japan and the United States.
Traders in India feel that silver prices have gone up drastically in the past few weeks and at any moment it can crash and they may have to suffer losses.
In the case of gold, the scene is different. Traders are stockpiling gold while they are not ready to trust silver because of the unpredictability of the metal.
In the recent past, silver prices have risen sharply raising doubts about its future trend. Only a considerable fall in silver prices can bring consumers back into the market. Silver prices had gone up more than three times to 27,500 rupees per kg last year from 8,000 rupees per kg in 2003. Currently, silver prices continue to be around 21,968 rupees.
According to experts, silver imports have virtually halted from the beginning of the year. Sharp jump in prices has seen more metal coming into the resale market which has been recycled and sold in open market.
In the last two months, over 100-150 tonne of recycled silver entered the market. While import of gold has slowed down in the last quarter of 2008, silver imports have recorded big jump during the period.
Open General License (OGL) imports are the only significant source of supply to the Indian market. Around 50% of India's silver requirements last year were met through imports of Chinese silver and other important sources of supply being UK, CIS, Australia and Dubai.
By contrast with United States and Japan, Indian industrial offtake for fabrication in hardcore industrial applications like electronics and brazing alloys accounts for only 15 % and the rest being for foils for use in the decorative covering of food, plating of Jewellery and silverware and jari. In India silver price volatility is also an important determinant of silver demand as it is for gold.
Traders say demand for silver these days is largely met by scrap that has warded off fresh imports.
Another hitch in importing silver to India is the complex rules. Apart from a few banks such as Nova Scotia, ICICI Bank, Kotak Mahindra, Punjab National Bank and Union Bank of India which import silver, agencies like Minerals and Metals Trading Corporation and State Trading Corporation (STC) are also involved in the import process from time to time.
But these days banks are not keen to import silver to India because of the thin margin they get out of the white metal.
Global consultancy firm, Gold Field Mineral Services (GFMS) in a report released late in 2008 had forecasted that industrial demand for silver is expected to fall in 2009 thus making the metal surplus worldwide.
Volatility in prices could be another factor that could discourage silver imports. Last year, silver prices were down 38 percent on an intra-year basis and high volatility is expected to continue according to GFMS. In India lower silver prices had led to surge in demand for the metal the second half of 2008.
Source : Commodityonline.com