China's silver imports are likely to surge in the next few weeks, as surging demand pushes domestic silver prices far higher than the international market, and traders will take advantage of this opportunity.

Because of its dual use as an industrial metal and financial asset, silver is at a “sweet spot.” It is an important material for solar panels, and China is still mass-producing solar panels; it is also a cheap substitute for gold. Driven by Chinese demand, the price of gold has continuously set new records.

Although silver prices rose to an 11-year high last week, the arbitrage window (that is, the spread between Chinese and world silver prices) widened further. This prompted more silver to be shipped to China, potentially squeezing supply from other countries.

Bank of Shanghai has a premium of more than 15% over international silver prices

Daniel Ghali (Daniel Ghali), a senior commodity strategist at TD Securities Inc. (TD Securities Inc.), said, “China's import wave will further drain free circulation from the West.” The market pricing doesn't reflect this, he said.

China's silver imports have been very strong in recent months. Imports in December of last year reached a three-year high of about 390 tons, then declined somewhat. Imports jumped again to over 340 tons in April. The average monthly import volume for five years was about 310 tons.

The premium on spot silver in Shanghai climbed to more than 15% last week, enough to make up for the 13% tariff imposed by China on imported goods. Meanwhile, as demand from the solar industry continues to be strong in recent years, China's silver inventory has declined.

“People are watching the decline in local silver stocks,” Ghali said. “Silver may be viewed as cheaper than gold. So it's an attractive proposition for those who want to participate in the rise in precious metals.”

UBS Group (UBS) updated its outlook for silver prices and raised the silver price forecast for various future dates by 4 US dollars/ounce. It is expected that the price of silver will reach 34 US dollars/ounce by the end of September, reach 36 US dollars/ounce by the end of 2024, and maintain this level until the end of March 2025. In addition, UBS also made a new forecast for the end of June 2025, setting a target of $38 per ounce.

Silver's recent performance has been very strong, especially in May, when silver outperformed gold. As a result, the gold to silver ratio fell to its lowest point since December 2022. Despite recent strong US economic data and the Federal Reserve's hawkish tone, UBS expects that the excellent performance of silver will continue. It is expected that by 2025, the gold to silver ratio will shrink further to around 70. “Total industrial demand is expected to grow 9% to 711 million ounces, driven by demand from the PV industry, according to data from the Silver Association,” the analyst said.

UBS Group predicts a sharp shortage in the silver market. The annual supply shortage is expected to reach 215.3 million ounces, equivalent to 17% of global annual demand. This gap is expected to drive the price of silver higher.