[SMM Analysis] December US Fed Interest Rate Cut Implemented, Downstream Awaits Pre-Holiday Purchases

In December, the US Fed implemented an interest rate cut as expected, reducing rates by 25 basis points and keeping the federal funds rate within the range of 4.5%-4.75%. Hawkish sentiment dominated the market, suppressing silver prices in the middle and latter parts of the month.
Supply Side:
Silver supply in December was largely flat compared to November, only slightly lower. Smelters, driven by cash flow needs, sold more than they produced, either selling to downstream enterprises or transferring to delivery warehouses, clearing out inventory. The market supply remained ample.
Demand Side:
Entering December, the market shifted into year-end review mode. The PV industry's production schedule was noticeably more relaxed compared to November. Due to uncertainties regarding December and January schedules, the market adopted a purchasing-as-needed approach. Additionally, downstream enterprises, being at the year-end, sought to minimize inventory, leading to weak purchasing demand. Electrical alloy enterprises maintained stable production based on orders. With silver prices consistently above 7,000 yuan/kg in December, stockpiling demand from enterprises was not strong. The market primarily purchased as needed for production, with no significant stockpiling activity. The jewelry industry was wrapping up the year's work, and with prices at a relatively high level, downstream orders were moderate. After completing existing orders, no new orders were received, and factories in this sector began the Chinese New Year break after New Year's Day.
Overall, December exhibited an oversupply situation. The market began fulfilling export orders and transferring to delivery warehouses, converting hidden inventory into visible inventory. A small number of enterprises started signing long-term contracts. Upstream enterprises, influenced by the high prices of silver-containing ore, saw an increase in premiums and discounts for silver ingot long-term contracts. However, with the 2024 annual premium and discount for self pick-up of national standard silver in the Shanghai region around 0.8 yuan/kg, the acceptance of higher prices was limited. The volume of long-term contract signings significantly decreased, and the market mainly relied on spot order transactions.

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