Demand ebbs and traders turn risk averse.
Silver trade is passing through tough times as traders have become risk averse due to high prices and are afraid to stock the white metal on lower demand.
The scenario is different from that of gold where traders are keen on stocking the metal. 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.
Gold and silver prices in India had hit lows during November last and since then have risen by 24.86 and 36.2 per cent, respectively. Internationally, during the same period, silver prices have risen 46.78 per cent while gold went up 17.36 per cent. This means silver is not rising in the Indian market as fast as internationally. Further, the international silver prices have risen faster than gold. Post-September 2008, huge imports of the white metal took place in India, keeping a check on prices. This has lead to a precarious situation in the silver market. “Traders have turned risk averse to stocking silver and demand is ebbing,” said Bhargav Vaidya, a bullion analyst. Traders fear that chances of correction in silver prices are higher compared to gold at the current price.
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. Suresh Hundia, president of the Bombay Bullion Association, said, “Industry demand has been met by recycled silver and there is no imported silver coming since the last two months.”
While import of gold has slowed down in the last quarter of 2008, silver imports have recorded big jump during the period. Early estimates suggest silver import may be around 3,000 tonnes during the whole of 2008 with a large part (nearly three fourth) of it being imported during the last four months of 2008.
Our early estimates indicate silver imports into India in 2008 could be above the average imports for the present decade (2001-2007), the average annual imports for the period is 2,863 tonnes,” said Gargi Shah, metals analyst with GFMS Ltd., a London-based precious metals consultancy firm.
The concentration of imports in last four months of 2008 was because of the quick demand when the prices fell suddenly. The metal, which was generally imported via. the sea route, was during the period imported by air. Some traders, who were short on silver in futures market, are said to have opted to take deliveries as prices came down, rather than book losses.
‘Yes, imports were largely concentrated towards the second half of 2008 owing to a big correction in the rupee silver price, which even went below Rs 17,000 after rising over Rs 26,000 in July last. Thus, the huge ‘discount’ in the price was the main reason for the surge in demand,’ said Gargi Shah.
“There is no demand for the metal from consumers and it will revive only if prices fall considerably. The good thing is that despite huge imports in the end of last year, there is not too much stock left in the market,” said Bhargav Vaidya.
Source : Business Standard