Author: Shi Jialiang Zeng Junhui
In the first half of the year, the price of silver fluctuated mainly at a high level and broadly, out of the “W”-shaped market as a whole, and its performance was relatively strong compared to the trend of gold. The price of silver rose continuously in January, which was mainly affected by the frenzied speculation by retail investors in the United States. The forum discussed that banks have been manipulating silver prices and artificially lowered the price of silver to cover up the fact that the supply of physical silver is short. 10%, but after all, the silver market is huge, and it quickly fell after short-term speculation. The U.S. economy rebounded rapidly in the first quarter, and the number of new infections fell sharply due to the advancement of vaccination. Market expectations of the Fed’s tightening policy strengthened. The Fed maintains a hawkish attitude. Once the employment and inflation targets are achieved, debt reduction will be on the agenda. As a result, U.S. Treasury yields have risen sharply, and institutions have started to sell medium and long-term U.S. Treasuries. The 10-year U.S. Treasury yields rose from 0.9% at the beginning of the year to 1.7%. The US dollar index strengthened and precious metals were under pressure. However, the industry represented by copper Metals have risen sharply due to the economic recovery, and the price of silver is stronger than that of gold under the support of commodity attributes. In the second quarter, the US consumption data was poor and the economy showed a “stagflation” state. The Fed’s attitude turned to dovish and said that inflation is only a short-term phenomenon. It focuses more on employment and economic recovery. The easing policy will continue to be maintained, and U.S. bond yields have begun to fall. , The real interest rate went down, gold stopped falling and rebounded, and the price of silver also followed up. Base metals also ushered in the second wave of rise in the first half of the year, further pushing up the price of silver. In mid-June, the results of the Fed’s meeting on interest rates exceeded market expectations. The time for interest rate hikes was advanced. The U.S. dollar index rose sharply. The price of precious metals fell sharply. The price of silver fell from $28/oz to around $26/oz.
At present, the epidemic still has a significant impact on the macro scenario. The reason is that under the background of the gradual economic recovery, the transmission path of “deterioration of the epidemic-increased uncertainty in the economic outlook-monetary policy needs to be maintained” means that the epidemic determines liquidity and its Expected tightness; therefore, under the current macro background, the Federal Reserve has also maintained the stability of monetary policy in the near future; however, under the influence of factors such as the progress of vaccination and economic recovery, inflation and employment, the urgency of the Fed’s monetary policy adjustment continues to increase.
Analysis of overseas silver supply and demand
Epidemic in Chile repeated, slow recovery of silver mine production
In the first half of the year, overseas mines gradually recovered, copper ore processing fees bottomed out, and zinc import processing fees stabilized at low levels, indicating that disturbances in overseas mines have weakened. The epidemics in Peru and Mexico have been well controlled, but the number of new infections in Chile has increased and the country has been closed. Time has been prolonged, strikes have continued, and interferences such as the Glacier Act and the Mining Rights Act have caused the recovery of mining production activities to be slow, and the silver output of some independent mines and associated mines has not yet fully recovered.
From the perspective of mine costs, according to Metal Focus, 28.7% of global mineral silver in 2019 came from independent silver mines, 22.8% from copper mines, and 32.1% from lead-zinc mines. Research data shows that in the first half of 2020, the average total maintenance cost of independent silver mines fell by 3% year-on-year to US$11 per ounce. Among associated mines, due to the continuous increase in the prices of copper, zinc, lead and other products, the cost of silver in some mines The marginal cost is already negative, so the production cost of silver is still in a declining stage, mainly stimulating independent silver mining companies to increase mining volume, and the support for prices is reduced.
The peak of the epidemic in India has passed, and the sales of US silver coins have fallen sharply
The rapid deterioration of the epidemic in India has become the focus of world attention. According to official statistics, the peak of the number of new infections has passed and the number has dropped rapidly, but the actual situation has not completely improved. The lack of oxygen is serious and the epidemic is still spreading. Makes India’s medical system overwhelmed. At present, more than half of the local governments in India have chosen to “close the city”, production and life have been suspended one after another, and many pillar industries in India are also facing serious impacts. Therefore, despite the easing of the epidemic, India, as the world’s largest consumer of jewelry and silverware, has significantly curbed silver consumption, the number of silver imports continues to decline, and market demand has fallen sharply. Due to the impact of the blockade, consumers cannot buy silver jewelry and silver. As a non-essential product, it is under pressure under the pressure of life and disease.
Silver coin sales in the United States fell sharply in April, and market subscription sentiment decreased. Due to risk aversion and retail speculation, silver coins continued to be popular in the United States. Since the first quarter of this year, sales have remained good, despite a sharp decline of 75% in April, mainly due to seasonality. The impact of factors has increased by more than 15% year-on-year.
Silver market spot investment enthusiasm decline
In 2020, the enthusiasm for silver physical investment is high, and both retail and institutional investors are very active. After entering 2021, the market was still hot under the speculation of US retail investors in the first quarter, but when US retail investors found it difficult to speculate on silver prices, market investment enthusiasm dropped sharply, and silver ETF holdings fell from the highest level in history, and continued to decline in the first half of the year. After the slight recovery in April, the downward trend remained unchanged, and the market’s enthusiasm for silver investment continued to decline.
Reduction in global silver supply surplus
According to data from the World Silver Association, silver has been in a surplus for a long time without the investment demand for silver ETFs. It has been surplus for 5 consecutive years since 2016. It is expected that it will remain in surplus without the investment demand for silver ETFs in 2021. There is a surplus of 13.8 million ounces, but the extent of the surplus has declined. In 2020, the global silver supply and demand surplus (excluding ETFs) is 14.7 million ounces. After including the investment demand for silver ETFs, the total supply and demand balance shows a short-term state, and the total supply and demand shortage in 2020 is 105 million. Ounces, ETF investment demand is 120 million ounces. It is estimated that the total supply-demand balance gap will further expand to 136 million ounces in 2021, and ETF investment demand will increase to 150 million ounces. The average price of silver in 2021 is expected to be US$27/ounce.
Analysis of China’s Silver Market Supply and Demand
The supply of raw materials is stable, and environmental protection affects the decline of refinery operations
The cost of domestic silver has risen slightly, and the price of silver raw materials has risen recently, and the price of upstream silver ore has risen, which has led to a slight increase in the cost of silver. The cost of silver has changed slightly, and the cost continues to be above 4,300 yuan/kg. The profit of domestic silver smelting plants has risen slightly, and the production cost has changed slightly recently. The price of silver has risen slightly, which has driven the industry’s profit to rise. The industry’s average gross profit has remained above 1,000 yuan/kg. Due to raw material supply problems, most domestic manufacturers have low output, and the presence of environmental protection inspection teams in various regions has affected the overall output. In the first half of the year, the supply of silver in the silver market continued to be tight. It can also be seen from the number of imported silver concentrates that from January to May, my country imported 40,600 tons of silver ore and concentrate, an increase of 28.8% year-on-year.
Affected by export profits, silver exports are at a high level
Affected by continued export profits, under the condition of no domestic tax rebate, the current spot silver export still has a profit of nearly 70 yuan/kg. The number of silver exports in the first half of the year has risen sharply, and the export volume of qualified enterprises is relatively large. From January to May A total of 210 tons have been exported, an increase of 52% year-on-year. In terms of imports, both imported silver and silver powder increased slightly in the first half of the year. From January to May, the cumulative import of silver was 171.4 tons, a year-on-year increase of 10%; from January to May, the cumulative import of silver powder was 129.5 tons, a year-on-year increase of 7.2%. It can be seen that the import trade of unforged silver is mainly in the form of processing trade and general trade, each accounting for 25% and 30%.
Domestic jewelry investment demand continues to be hot
With the further recovery of the domestic economy, the demand for silver jewellery increased significantly in the first half of the year, and the price of gold and silver was at a high level. Especially during the May 1st holiday, the consumption of gold and silver increased significantly. Compensatory consumption broke out, and the gold and jewelry market in various provinces ushered in a small sales climax. The growth rate of total retail consumption is still significantly ahead of the growth rate of gold, silver and jewellery. From January to April, the total retail sales of consumer goods across the country increased by 25.7% year-on-year; from January to May, the retail sales of gold, silver and jewellery increased by 93.4% year-on-year, a significant increase compared to 2019.
Industrial demand performs well
In terms of industrial demand, the electronic information industry performed well in the first half of the year. From the fixed asset investment, it can be seen that the development of the electronic information industry is still booming. From January to April, the fixed investment in the electronic information industry was 1.11 trillion yuan, a year-on-year increase of 27.6%, 1~ In May, the added value of the electronic information industry increased by 21.5% year-on-year. The domestic 5G base station was built rapidly. The latest news from the Ministry of Industry and Information Technology shows that China has achieved a leading advantage in 5G development. A total of 819,000 5G base stations have been built, accounting for approximately It is 70%; the number of 5G mobile phone terminal user connections reached 280 million, accounting for more than 80% of the global proportion. It is expected that more than 1 million base stations will be built this year.
In terms of photovoltaics, according to the forecast of mainstream market institutions, global photovoltaic demand is expected to reach 170GW in 2021, and China’s demand is expected to reach 55GW. The increase in raw material prices will have a greater impact on the construction of some photovoltaic projects. From January to May, the output of photovoltaic cells was 79.645 million kilowatts, a year-on-year increase. 58.7%, the upward momentum has slowed down. In addition, HIT technology has begun to flourish in the photovoltaic industry. Because HIT uses low-temperature silver paste, the unit consumption is 2.2 times that of PERC technology, which supports the demand for silver in the photovoltaic industry, but some companies cut silver paste in order to reduce costs. use.
Domestic stock exchanges continue to deplete
In the first half of the year, affected by the increase in export profits and domestic industrial demand, domestic exchange inventories continued to deplete. As of June 31, the Shanghai Gold Exchange’s inventory was 311 tons, a decrease of 93 tons from the end of 2020, and the Shanghai Futures Exchange’s inventory was 210 tons, compared with By the end of 2020, it will be reduced by 86 tons. In the short term, the export profit window is still open, domestic industrial demand is still good, and the superimposed smelter is affected by environmental inspections. Therefore, the domestic exchange inventory will continue to decrease, the spot will become tight, and the arbitrage strategy of long TD short futures can continue. have.
Conclusion and suggestion
On the whole, the silver price in the second half of the year is likely to be mainly downhill. The support is strong near $22/oz in the outer disk. The main reason is that the trend of silver prices is still mainly to follow gold. Since the market is only one-tenth of gold, As a speculative product of gold, the price is still dominated by financial attributes, and the strength of commodity attributes determines its volatility. Therefore, inflation expectations and the Fed’s monetary policy expectations have a greater impact on silver prices. The dollar index and U.S. bond yields directly affect silver. Price trends, specific analysis: First, the Fed is about to turn, considering the key factors of the Fed’s monetary policy adjustment, except that there is still a certain gap in the vaccination rate and employment rate, the others have been achieved. This data has recovered significantly, so the Fed’s monetary policy adjustment is also on the line, and the Fed’s attitude at the June meeting on interest rates has turned eagle. Therefore, the direction of tightening the currency is determined, but it is only a matter of time. In terms of U.S. bond yields, the impact will be affected. The core factors for the change in the 10-year U.S. Treasury yield are inflation expectations and real interest rates. With the U.S. inflation data continuously setting new highs, the Fed’s short-term inflation statement was falsified. The author believes that the 10-year U.S. Treasury yield is in the top In the third quarter, the strong market will regain its strength, continue to rise, and suppress the trend of all risky assets; the dollar index, which comprehensively reflects the exchange rate of the dollar in the international foreign exchange market, is an indicator of the strength of the dollar and non-US currencies. In terms of recovery, the U.S. economy has recovered better than Europe, and the Federal Reserve is already releasing its expectations of tightening monetary policy. In the second half of the year, it is likely to reduce the scale of bond purchases and complete the first step of the monetary policy shift. The U.S. dollar index is expected to be more bullish in the second half of the year. Strong, the US dollar index will return to strength after it successfully bottoms around 90. The possibility of rising to above 94.7 in 2021 is still relatively high, and silver is under greater pressure at the level of financial properties. Secondly, in terms of commodity attributes, the domestic silver market will maintain a boom in supply and demand in the second half of the year, but overseas silver spot has been loosened, so the export profit window may be gradually closed. The domestic downstream industry still needs support, and the raw material prices in the first half of the year The sharp increase has affected some demand, especially orders from the photovoltaic industry, which will be covered in the second half of the year. In particular, photovoltaics are still expected to be rushed to install. The semiconductor industry is booming, and the probability of a sharp decline in other industrial metals is low. However, from the perspective of investment, the overall investment enthusiasm for precious metals has declined, and both ETF and COMEX positions have gradually declined. Therefore, at the commodity attribute level, the silver price mainly provides partial support, and it is difficult to dominate the price trend.