Indian silver demand to slow as gold curbs relax

Silver demand is expected to reverse in India, when the government reduces gold import curbs.

India’s curbs on gold have `diverted some traditional gold demand toward silver, particularly for investment’, according to analysts at Societe Generale. In a research report, the French investment and bullion bank Societe Generale has also pointed out that Indian silver demand is likely to fall this year, reversing the strong trend of the previous year. 

India is the world’s third largest consumer of the white metal. With its jewellery industry valued at over $40 billion in 2013, cementing strong demand from the 10 million Indian weddings every year comes easy to bullion.

Societe Generale has noted that last year’s demand for silver was around one and a half times the level in 2012. 

India imported an estimated 4,800 tonnes of silver in 2013, as compared to 1,900 tonnes imported in 2012. India has accounted for around 12% to 15% of the total global silver demand in recent years, analysts have said. 

Given that gold imports into India were dented by the government’s curbs, with the country’s trade deficit shrinking to a 30-month low in September last year, Indian consumers appear to have turned to silver. 

Total imports of silver by India during the first quarter of the current financial year amounted to $1.78 billion, 311% higher than the imports of $433.8 million during the corresponding quarter last year. A record high was reported at 5,048 tonnes in 2008.

As Manish Kedia, bullion trader pointed out, “Silver saw a high of $32 last February, but was unable to maintain its momentum and dropped nearly 40% to $19.40 on the Comex. On the Multi Commodity Exchange too, MCX silver followed the same pattern and despite a weaker currency, plunged from $963 (Rs 60,000) to $674 (Rs 42,000).”

This, he added, brought on new investors to the white metal. 

While gold prices fell by about 3%, silver plummeted almost 40% in 2013, said traders.

Analysts at Societe Generale have noted that between April to August last year, imports of silver jumped in India, brought on by the dramatic price drop. Between January to August 2013, silver imports have doubled 2012’s full year total, at 4,073 tonnes. 

However, there are some hurdles set in for silver this year. Analysts have added that Indian silver demand is expected to ease further this year, with the Indian government relaxing some of the restrictions on gold imports, as has been announced by the Finance Minister post a letter from the UPA chairperson Sonia Gandhi, asking for an easing of gold imports. This, analysts have said, would have consumers veer back to gold and thereby increase gold imports.

Globally too, there have been signs in February that the rebound in the price of silver has caused demand to drop back, especially from the notoriously price sensitive jewellery and silverware segments, analysts have pointed out.

Asked to comment on the duty collections, J M Shanti Sundharam, chairperson of the Central Board of Excise and Customs said that the customs duty collections were lower because of the higher duty on gold in India, which was aimed at containing the current account deficit. 

Adding that the latter was under control, he said there was time till the end of the financial year for the government to change its stance. He, too, added that consumers in India would veer to gold, if the import structure is changed, leading to lesser imports of silver.

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