Could Spot Market Prosperity Be Maintained amid Low Silver Prices in May?

SHANGHAI, May 27 (SMM) - The Federal Reserve released on Thursday its monetary policy meeting minutes, showing that most Fed officials believe that a 50 basis point rate hike in June and July may be appropriate, and all Fed officials support to start shrinking the balance sheet soon. Throughout May, the high US dollar index as well as sound US bond yields driven by the Fed’s rate hike pressured silver prices. Spot silver was quite sought after this month.

According to SMM research, the spot ex-factory prices of silver is in premiums 3-5 yuan/kg, and 6-8 yuan/kg in Shenzhen (silver of national standard). The premiums would rise to 20-30 yuan/kg if counting in freight rate when the amount is small.

There are three reasons for the premiums this month. First, as Jiangsu and Zhejiang consumed previous stockpiles shipped from Shanghai, the supply cannot be supplement as Shanghai was severely hit by the pandemic. Spot supplies in other regions were also tight.

Second, the silver price is at a relatively low level this month, and the downstream purchased actively, resulting in high upstream premiums.

Third, at the beginning of the year, the domestic silver price was lower than overseas with a price spread of more than 100 yuan/kg. Some arbitragers secured overseas positions to gain profits. Now these positions have been delivered, resulting in less silver flowing into the market.

The first and second reasons are the main causes that led to spot premiums, which can be interpreted into tight spot supply and robust downstream demand.

SMM believes that the supply tightness of silver will not last long. First of all, smelters maintain normal production, and the output will flow into the market in June. Secondly, the warehouses in Shanghai are now ready to supply the market. At present, spot silver circulating in the market has been increasing, and it is expected that the premiums will narrow next week or in June.