Silver exports from China, the world’s largest, are expected to drop this year as domestic demand from investors is expected to surge. And, in a market that has seen significant price volatility, these reduced exports could bolster prices of the white metal, say analysts. On Monday, December silver lost 65.8 cents to close at $34.024 an ounce in New York. The metal has advanced 10% this year.

According to a statement from China’s ministry of commerce, the 2012 export quotas for silver from the Asian country have also been reduced by 5%. This amounts to a cut of 283 tonnes in its 2012 silver export quotas from 5,670 tonnes in 2011. 

Roughly 70% of China’s silver demand comes from the industrial sector. Analysts say shipments are also set to decline with customs data showing a drop in exports. Chinese customs data showed export growth falling more than expected in September, while import growth also declined.

Silver imports into China fell by 39% year on year and 16% month on month to 264.7 tonnes in September, the lowest level since February. Silver exports too declined by 44% year on year to 83.5 tonnes, keeping China a net importer of the metal for two consecutive years on a monthly basis, data showed.

Moreover, China’s third-quarter gross domestic product was up 9.1% from a year ago, slowing from 9.5% growth in the second quarter and 9.7% growth in the first, according to China’s National Bureau of Statistics. This marked the slowest pace since the third quarter of 2009. 

“Silver prices have been volatile of late. Like rare earths, China is also cutting exports of silver. Less exports mean tighter markets everywhere else,” said Sonamull Shah, bullion retailer. He added that a strengthening US economy had pushed the dollar up and taken away the white metal’s safe haven appeal. 

 

“With the commerce ministry in China restricting silver exports, it would create a highly volatile situation in the global market,” said Manikbhai Shah, silver retailer in Mumbai. 

China, the biggest emerging market user, is said to be expanding at more than five times the speed of the US, driving consumption of the precious metal most used in the industry. Analysts say demand is also coming from investors looking for an alternative to cash and gold, which costs about 50 times more than silver. 

Gold for December delivery fell $9.70, or less than 1%, to settle at $1,788.40 per ounce on Monday on the Comex in New York. Gold futures too declined for the third time in four sessions. Last week, the yellow metal had gained 1.8%, the third straight increase.

Data showed that US consumers were at their gloomiest in 2.6 years in October, which fed safe-haven demand for gold. According to some analysts, safe haven demand will continue in Asia as macroeconomic and geopolitical risks remain elevated. Investment bank Goldman Sachs has also raised its forecasts for both gold and silver prices, citing expectations of continued low interest rates in the United States.