Why Are Smelters Paying "Upside-Down Silver Prices" for Crude Silver? A Brief Analysis of the Current Crude Silver Processing Fee [SMM Analysis]

According to SMM, amid the significant rally in precious metals in 2025, the silver recycling market has seen heightened activity, with instances of inverted silver prices leading to aggressive purchases of crude silver.

In previous years, crude silver processing fees remained stable and unchanged, but they have begun to fluctuate against a backdrop of an expanding supply-demand gap for silver ingots, overheated speculative attributes, and soaring returns from minor by-products such as gold, platinum, and palladium. Market quotes for crude silver processing fees have widened, with many traders acquiring Ag99 crude silver materials at prices inverted against national standard silver ingot quotes (i.e., at a slight premium to TD). Behind this, some are offering lower processing fee deductions to hoard raw materials in anticipation of speculative gains from rising silver prices and the contained minor metals like gold, platinum, and palladium.

Sources of Crude Silver and Industry Practices

Unlike the three grades of national standard silver ingots, crude silver lacks a clear, unified standard. The industry standard "YS/T 1326-2019 Crude Silver" only specifies three types: Ag80, Ag95, and Ag98. Some market traders also refer to 2# silver (Ag99.95%) and 3# silver (Ag99.90%) as crude silver, quoting corresponding processing fees (discounts) for transactions. The market does not strictly define whether crude silver originates from mined silver or hydrometallurgical/pyrometallurgical recycled materials. Its appearance can be powdered, flaked, or lumpy, and various types of materials are blended and remelted into plates before processing. Besides crude silver enriched from mined silver, materials enriched to above Ag80 from processed jewelry, alloys, paste wiping cloths, etc., can enter the market. However, toll processing of electrolytic silver or procurement of recycled raw materials typically focuses on crude silver materials above Ag97, with some manufacturers' production lines only accepting materials ranging from Ag98 to Ag99.95. A few manufacturers occasionally recycle Ag80 to Ag95 materials but note that impurity types and content affecting recovery rates, along with the recovery rates of impurity types and enriched metals, have a greater impact on processing fees for lower-grade silver materials.

It is understood that almost all refined silver smelters in the market have the production capacity to process or toll process crude silver above Ag98, but not all smelters participate in trading crude silver raw materials. On one hand, the traditional crude silver market is small and stable, with manufacturers consistently exporting mined and smelted crude silver usually locking in annual business through long-term contracts with fixed buyers; these enterprises have no intention of expanding their client base or engaging in spot order transactions. On the other hand, although smelters can process silver materials of various grades to meet national standard 1# silver quality, their capabilities for recovering other enriched metals vary. Therefore, they may forgo transactions when the recovery benefits of other enriched metals cannot offset losses from silver processing.

Market Quotations

In the past, the processing fee for 2# silver (Ag99.95%) at 15 yuan/kg and for 3# silver (Ag99.90%) at 30 yuan/kg remained almost unchanged throughout the year, and sometimes the processing fee for Ag98 was no different from that of 3# silver. However, with the expansion of the silver demand gap and the macro-driven precious metals bull market, the processing fee for crude silver began to decline. By September, the mainstream market quotation for Ag98 processing fees had dropped to 18-25 yuan/kg, while the processing fee for 3# silver narrowed to 15-18 yuan/kg. A toll processing manufacturer of crude silver stated that although their external quotation for Ag97-Ag99 toll processing is 30 yuan/kg, if the volume is large or from a stable trading major client, the actual negotiation price is usually reduced by 5-8 yuan/kg. However, for very small volumes or partners yet to establish trust, there is no room for negotiation on the reduction of processing fees.

Additionally, the processing fee for crude silver materials containing small amounts of gold and platinum has fallen more significantly. This is mainly because in previous years, the rich metal content did not attract much interest from sellers in pricing, but this year, the impact of rich metal content on processing fees has started to show. It is understood that some market traders have chosen to lower the starting point for gold-rich silver pricing from 50g/mt to 25g/mt and reduce the deduction for gold pricing, while others have opted to decrease the main silver processing fee by 10-15 yuan/kg, thus quoting crude silver prices that are inverted compared to 1# silver. Furthermore, the richness of platinum and palladium also affects the value of crude silver, but due to the lesser increase and expectations for platinum and palladium compared to gold, there has been no significant adjustment in the starting point for pricing and its coefficient.