Focus: Silver needs China to destock before it rallies
Focus: As long as China does not import silver, the price is unlikely to rally on a sustainable basis. However, should imports stay low for a few months and stock levels deplete, we do believe that China will have to come back and restock. This, we believe could provide enough support for the metal to push pricaes above $35, towards $40.
Focus: Silver needs China to destock before it can rally
Two key growth areas for silver demand have been industrial applications and investment demand. While we expect investment demand to remain in place in 2012 (mainly on the back of low real interest rates), silver needs strong fabrication demand to push the price higher.
We expect fabrication demand to grow by 3% in 2012. Most of this growth should come from electronics and photovoltaic demand. In terms of regions, as with other metals, we expect industrial demand to grow strong in China, Japan (mainly due to poor 2011) and other EM. We expect total fabrication demand to reach 16,803K mt in 2012 — a 3% increase on 2011.
We believe that China’s fabrication demand (industrial, photography, jewellery, silverware) is set to grow 7.5%, to 4,940mt. At the same time, China mine supply may only grow by 7%, still leaving a supply gap of 1,443mt in 2012.
Much of the tightness in the silver market since 2008 has come from China flipping from a net exporter to a net importer of silver. Between 2008 and 2011 China imported a total of 7,319mt of silver.
China can fill their fabrication demand gap by either importing metal once again or drawing down existing stockpiles. Indications are that China is drawing down silver stockpiles. This is evident from the sharp decline in SGE silver premiums in recent months (from around $4/oz — $5/oz when silver was trading above $40 to less than $0.50/oz recently). This is also evident in the decline of Chinese net imports of silver.
As long as China does not import silver, the price is unlikely torally on a sustainable basis. However, should imports stay low for a few months and stock levels deplete, we do believe that China will have to come back and restock. This, we believe could provide enough support for the metal to push prices above $35, towards $40. We doubt silver could trade above $35/oz this quarter, but we do look for a push above this level, and to test $40/oz towards Q3:11.
Original source: http://www.kitco.com/scripts/commentary/fr...d_feb152012.pdf
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16 February 2012 Commodities Daily Report
Focus: Silver needs China to destock (part 2)
Focus: Silver needs China to destock (Part 2) - Yesterday, we said China would need to destock first before silver can move above $35/oz on a sustainable basis (see the Focus section in our Commodities Daily dated 15 February 2012). The question is: how much must China destock before prices can rise on a sustainable basis?
Focus: Silver needs China to destock (Part 2)
Yesterday, we said China would need to destock first before silver can move above $35/oz on a sustainable basis (see the Focus section in our Commodities Daily dated 15 February 2012). We also said that China was already destocking, as evidenced by declining silver imports.
However, while we expect fabrication demand in China to grow by 7.5% in 2012, demand for silver is not very strong at the moment. This is evident in the SGE premiums which are relatively low, at under $0.50/oz.
The question is: how much must China destock before prices can rise on a sustainable basis? We estimate that aboveground stock for silver was at 35,560mt at the end of 2011. These stockpiles have been rising steadily from 24,100mt in 2008, reaching a high of 36,958mt in 2010, before falling marginally last year.
Physically-backed ETFs hold the largest portion of these stockpiles, with 17,440mt at the end of 2011. More importantly, China has rapidly increased its above-ground stockpiles. We use fabrication demand, mine supply and net import figures to estimate the above-ground stock of silver in China. Currently, we estimate China has 6,129mt of silver stock. Much of this may be investment-type inventory. The current above-ground stock in China is equal to 15 months of fabrication demand. This inventory is up from only 12 months of fabrication demand in 2011. As a result, we believe that China’s inventory needs to decline to at least 10-12 months of fabrication demand in order for demand-pull pressure to build. Until then, we expect silver rallies to fade above $35/oz.
Therefore, as mentioned yesterday, we doubt silver could trade above $35/oz this quarter but we do look for a push above this level, and to test $40/oz towards Q3:11. We believe that by then, China’s inventory may be at levels where imports need to increase. We would look closely for a pick-up in SGE premiums domestic tightness in China’s silver market building.
Original source: http://www.kitco.com/scripts/commentary/fr...ruary162012.pdf
Focus: As long as China does not import silver, the price is unlikely to rally on a sustainable basis. However, should imports stay low for a few months and stock levels deplete, we do believe that China will have to come back and restock. This, we believe could provide enough support for the metal to push pricaes above $35, towards $40.
Focus: Silver needs China to destock before it can rally
Two key growth areas for silver demand have been industrial applications and investment demand. While we expect investment demand to remain in place in 2012 (mainly on the back of low real interest rates), silver needs strong fabrication demand to push the price higher.
We expect fabrication demand to grow by 3% in 2012. Most of this growth should come from electronics and photovoltaic demand. In terms of regions, as with other metals, we expect industrial demand to grow strong in China, Japan (mainly due to poor 2011) and other EM. We expect total fabrication demand to reach 16,803K mt in 2012 — a 3% increase on 2011.
We believe that China’s fabrication demand (industrial, photography, jewellery, silverware) is set to grow 7.5%, to 4,940mt. At the same time, China mine supply may only grow by 7%, still leaving a supply gap of 1,443mt in 2012.
Much of the tightness in the silver market since 2008 has come from China flipping from a net exporter to a net importer of silver. Between 2008 and 2011 China imported a total of 7,319mt of silver.
China can fill their fabrication demand gap by either importing metal once again or drawing down existing stockpiles. Indications are that China is drawing down silver stockpiles. This is evident from the sharp decline in SGE silver premiums in recent months (from around $4/oz — $5/oz when silver was trading above $40 to less than $0.50/oz recently). This is also evident in the decline of Chinese net imports of silver.
As long as China does not import silver, the price is unlikely torally on a sustainable basis. However, should imports stay low for a few months and stock levels deplete, we do believe that China will have to come back and restock. This, we believe could provide enough support for the metal to push prices above $35, towards $40. We doubt silver could trade above $35/oz this quarter, but we do look for a push above this level, and to test $40/oz towards Q3:11.
Original source: http://www.kitco.com/scripts/commentary/fr...d_feb152012.pdf
========================================
16 February 2012 Commodities Daily Report
Focus: Silver needs China to destock (part 2)
Focus: Silver needs China to destock (Part 2) - Yesterday, we said China would need to destock first before silver can move above $35/oz on a sustainable basis (see the Focus section in our Commodities Daily dated 15 February 2012). The question is: how much must China destock before prices can rise on a sustainable basis?
Focus: Silver needs China to destock (Part 2)
Yesterday, we said China would need to destock first before silver can move above $35/oz on a sustainable basis (see the Focus section in our Commodities Daily dated 15 February 2012). We also said that China was already destocking, as evidenced by declining silver imports.
However, while we expect fabrication demand in China to grow by 7.5% in 2012, demand for silver is not very strong at the moment. This is evident in the SGE premiums which are relatively low, at under $0.50/oz.
The question is: how much must China destock before prices can rise on a sustainable basis? We estimate that aboveground stock for silver was at 35,560mt at the end of 2011. These stockpiles have been rising steadily from 24,100mt in 2008, reaching a high of 36,958mt in 2010, before falling marginally last year.
Physically-backed ETFs hold the largest portion of these stockpiles, with 17,440mt at the end of 2011. More importantly, China has rapidly increased its above-ground stockpiles. We use fabrication demand, mine supply and net import figures to estimate the above-ground stock of silver in China. Currently, we estimate China has 6,129mt of silver stock. Much of this may be investment-type inventory. The current above-ground stock in China is equal to 15 months of fabrication demand. This inventory is up from only 12 months of fabrication demand in 2011. As a result, we believe that China’s inventory needs to decline to at least 10-12 months of fabrication demand in order for demand-pull pressure to build. Until then, we expect silver rallies to fade above $35/oz.
Therefore, as mentioned yesterday, we doubt silver could trade above $35/oz this quarter but we do look for a push above this level, and to test $40/oz towards Q3:11. We believe that by then, China’s inventory may be at levels where imports need to increase. We would look closely for a pick-up in SGE premiums domestic tightness in China’s silver market building.
Original source: http://www.kitco.com/scripts/commentary/fr...ruary162012.pdf
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