Domestic Chinese Silver Consumption Outpaces China Supply

RENO, Nevada – In their Silver Yearbook 2011, New York-based precious metals consultants CPM Group is calling attention to China’s importance not only as the world’s third largest silver miner but also as a major global silver consumer.

While Chinese silver mine supply accounted for roughly 16% of global silver mine production last year, CPM Group noted the country was also a major manufacturer of many silver-containing products, such as electronics, solar modules, brazing alloys, and jewelry.

For the first time, CPM was able to integrate domestic fabrication demand and investment demand statistics for China’s silver market and integrate those statistics into its market economy supply and demand data for this year.

CPM said it has worked to develop better estimates of silver use in China and developed what it feels are sufficiently reliable statistics on Chinese silver mine production, scrap recovery, and fabrication demand by major industrial category, relying on a network of industry associations and industrial participants in these markets.

“China’s silver market is roughly three times the size it was in 2000,” CPM noted in its recently published Silver Yearbook 2011. “China is the third largest producer of mined silver in the world. China also is a major consumer of silver, absorbing large and rapidly growing volumes of silver in its electronic manufacturing sector.”

“Chinese silver mining witnesses significant growth and development in recent years, fueled by technological strides in exploration and an increase in production in response to steady growth in domestic and international demand,” CPM said.

For instance, CPM found domestic demand for silver has outpaced supply growth. “China was a net exporter of silver until 2006, but became a net importer in 2007.”

“Chinese investment demand for silver coins and medals began to rise at a double digit pace in 2008, a trend likely to continue as consumers seek to preserve their wealth amid rising inflation in the economy,” CPM forecast.

The Chinese mine supply of silver totaled 102.7 million ounces in 2010, according to CPM.  More than two-thirds of that output is from silver contained in copper, lead, zinc and gold concentrates. “Consequently, China’s refined silver production has been growing in tandem with base metals output.”

CPM predicts silver mine production could increase to 104.6 million ounces this year. “China’s silver mine supply is expected to increase over the next few years, driven mainly by production expansions at silver-producing base metals mines.”

Jiangxi Copper, one of the largest copper producers in China, was also among the biggest refined silver producers with 14.8 million ounces of refined silver in 2010. The country’s total refined silver output in 2010 was estimated at 194.4 million ounces.

CPM forecast that Jiangxi could produce 15.6 million ounces of silver in 2011. The precious metals consultants estimated Jiangxi has about 341.8 million ounces of silver in proven reserves.

China could also see more silver producing projects come online in the next two to three years, CPM predicted. Minco’s Fuwan mine is a primary silver mine that would have a production capacity of 5.5 million ounces annually.

Continental Minerals’ Xietongmen mine could come onstream in 2012 and yield about 1.7 million ounces of silver production annually with 23.7 million ounces of silver reserves.

“Chinese industrial production expanded at a robust pace in 2010,” said CPM. “In 2010 China’s fabrication demand for silver is estimated to have risen by 10.3% to 153.3 million ounces.

CPM predicts Chinese silver fabrication demand will rise 15.6% to 177.2 million ounces this year.

Despite silver price increases, Chinese consumer demand for jewelry and silverware has been strong, CPM noted. “Silver jewelry demand remained steady because it is comparatively more affordable than gold or platinum jewelry.”

“In addition many Chinese consumers are said to prefer the white color of silver jewelry to the yellow color of gold.”

CPM estimated 2010 consumption of silver jewelry and silverware was 33.2 million ounces. In 2011, silver jewelry and silverware consumption is forecast to rise 9.6% to 36.4 million ounces.

In their analysis, CPM noted silver use in electronics and electrical appliances account for more than a third of China’s total silver use.

“At present China has world-class manufacturing hubs which produce many of the silver-containing electronic components used globally,” said CPM. “Chinese manufacturers have been importing silver materials from overseas in order to meet the high level of technical specifications required in certain high-technology applications.”

Silver use in electronics in China is estimated to have risen to 59.4 million ounces, CPM said. “In 2011 this is expected to grow 4.9% year-on-year to 63.4 million ounces.”

Consumption of silver by China’s solar panel manufacturing sector is estimated to have reached 15.4 million ounces in 2010, nearly double that of 2009.

“Chinese solar panel production is expected to continue to grow strongly on expectations of increased domestic and international demand,” CPM noted. “A tremendous amount of solar manufacturing capacity is expected to come onstream in China in the next couple of years.”

Demand for silver from Chinese fabciration of solar panels is expected to grow further to 28.9 million ounces this year, up 88% year-on-year.

China is also a major global producer and consumer of silver-based brazing alloys. It has some of the world’s largest manufacturing facilities for home electronics and electrical appliances, which utilize various type of silver-based solder.

Silver use in brazing alloys and solder is estimated at 30.5 million ounces in 2010. A further demand increase to 33.1 million ounces is forecast for this year, according to CPM.

To order the CPM Silver Yearbook 2011, go to www.cpmgroup.com. The report may be ordered and downloaded online.

Article by Dorothy Kosich, http://www.mineweb.com/mineweb/view/mineweb/en/page32?oid=126802&sn=Detail&pid=102055.

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