[SMM Analysis] How Are Long-Term Contracts for Silver?  

Since long-term contracts for silver will be signed after the New Year, the market is currently engaging in discussions and interactions before the holiday. However, there is intense tug-of-war sentiment in the market regarding the pricing of premiums and discounts for long-term contracts.

Price Increase?

This year, the coefficient of silver-bearing ores has risen significantly. Due to the upward trend in silver prices, the market's demand for ore resources has become increasingly urgent. The supply-demand relationship has driven the coefficient of silver-bearing ores upward, significantly increasing raw material costs for smelters. Since the optimal silver content for smelter feedstock is above 3,000 g/mt and domestic ores are primarily low-silver-content associated ores, smelters need to blend ores or purchase pre-blended ores. This has led to growing demand for high-silver-content ores, with the coefficient prices of high-silver-content ores abroad also rising accordingly. Domestically, high-silver-content ores are mostly pre-booked by downstream customers with advance payments, making low-priced goods scarce in the market.

Price Decrease?

The average price of SMM 1# silver this year has risen by approximately 30% compared to last year. Amid high prices, the substitution of base metals for silver in other industries has increased significantly. Meanwhile, in the PV sector, the unit consumption of silver in TOPCON-type batteries has decreased by about 20% this year, resulting in less-than-expected growth in silver demand for PV applications. The sharp price surge has also suppressed the market's stockpiling demand for industrial raw materials. In H1, strong PV demand drove domestic silver prices higher, with domestic prices exceeding foreign tax-inclusive prices in June and July, stimulating silver ingot imports and reversing China's previous image as a silver-exporting country. However, with high prices, domestic silver supply has increased, and the market has experienced oversupply of spot silver for several months. Trading enterprises have resorted to offering significant discounts to sell their goods, as high-priced long-term contracts impose substantial cost pressure on traders, making their sales strategies and cycles relatively passive.

Currently, both sides have their respective supports, and the price negotiation between upstream and downstream remains intense, with neither side willing to compromise. Both parties also have alternatives, leaving the market in a state of observation.