By: Rhona O'Connell, Head of Market Analysis
Chaired by Nick Frappell; presentations from Mark Woolley, Terry Hanlon, then they were joined on a panel by Sunil Kashyap and Amal Singh
Yet again, silver dominated the proceedings in this session and ironically it was the only subject that didn’t command a session of its own. (the silver Round Table, though, was a really interesting discussion).
The big takeaway is the amount of silver that is being flown, at 25 cents per ounce vs the 5 cent charge for seaborne, because consumers want two days, not 3-4 weeks, and they’re paying up.
Note that Dillon Gage is currently moving six times as much silver in coins than pre Covid.
Mark’s presentation was fascinating and voted Best in Conference.
Source: Brinks Global Services, Mark Woolley
In summary:
BGS gold movements:-
2020 massive into the US. Not surprising given what was going on
2021 resurgence into India
2022 resurgence into China
The majority of Brinks metal leaving the U.S. is going East, largely for kilo bars. Flows ex-US are unprecedented with NY staff getting instructions at nine to ten times the historical norm.
Silver:
2020 huge flows to the US, largely via Canada, which is a lot cheaper than direct.
From September 2021, huge flows into India, largely by air.
Not much was made of the fact that much of this is pent-up demand after a dreadful 2020 and 2021 was not that much better (roughly 1,800t and 2,400t respectively). Sunil made the point, but it seemed to be side-lined thereafter. That does not detract though from the fact that we could easily see 10,000t into India this year. Global industrial demand is ~26,000t.
Side note: if you add the outflows from LBMA vaults, CME and ETPs ditto, that’s 12,000t ytd. The feeling was that the metal was coming out and the market was absorbing it; I tend to think of it the other way round - it’s coming out because the market wants it.
[The latest trade stats show an average monthly export of silver from China in 2019 of 214tpm; in 2020, 296tpm; in 2021, 374tpm; and in Jan-August 2022, 317tpm so we must assume that exports have tailed off since then].
Reported China exports of silver; t
Source: China official trade statistics
More generally - shipping flows etc
China supply of silver into the west depends on the level of China manufacturing and there’s very little coming out at present, and it doesn’t look as if there are currently any quotas in place (but base metal by-product exports are permissible).
During the pandemic, all the shipping companies put their efforts into supplying the west coast of the States (and they’ve made a fortune while the airlines have been annihilated); securing a vessel to go to India was almost impossible.
Container Congestion…
… and Container Carrier Reliability
Source: Brinks Global Services, Mark Woolley
Container carrier reliability has dropped from a typical 73% pre-Covid to less than 40% this year and last. The cascading effect of a multi-stop trip can mean a 15-day addition to a 30-day transit.
Air freight rates into China remain troublesome due to the slow recovery in passenger traffic.
Terry Hanlon, Dillon Gage
The public is happily absorbing high premia, some of which is supply chain related rather than high demand pure and simple.
Wholesale market; silver has taken over from gold in Europe although the German VAT change may cause problems.
The secondary market for companies such as DG has dried up over the past 2-1/2 years with dealers now turning inventory around in days rather than months as in the past.
Sovereign Mints: suffered more in terms of output during Covid because governments were telling people not to go to work, thus opening up the space for the private operators. Labour conditions are now, though, improving at the sovereign mints. Acceptable delivery time is now three to four times the norm and pre-selling of inventory is a huge addition to trading patterns, with operators locking in up to 3-4 months ahead vs 3 - 4 weeks previously.
Lack of blanks is a big issue, especially as some government mints, including the US, refuse to make their own.
We are experiencing the highest premia ever and Terry expects this to persist through 2023; all mints are expecting allocations and no tapering off is likely until 2024.
Panel
Note a dramatic increase in the amount of silver that is going into IRAs in the States - Nick affirms that it’s similar in Australia. There are some dealers who specialise solely in PM sales to IRA customers as awareness has spread (permissible offshore also).
India; as well as pent-up demand (imports normally 5-6,000tpa and were massively below that last year and in 2020 (see above), and even with some exports) there have been government incentives to farmers and this year’s crop has been a reasonably good one [note the MSP was raised all round on the Khalif crops this year] and the “one-time income” is going into silver.
Amal estimates that of India’s normal 5-6kt, roughly half would come from China, but this source is currently dry, on the back of prices and shipping cost; he estimates that a spot price of $22-25 would be necessary [although there was no mention of the influence of any international arbitrage].
Up to 90% of India imports this year are airborne and London is clearly the supplier of last resort. He also thinks that there is more airline capacity for going into India than there is for coming out.
Despite the costs, it is hard to sea air freight reverting to the sea for at least the next 12-15 months.
The relatively small number of banks prepared to work with silver (contrast gold) was also a topic of note due to the number of processes involved.
So as I write the message from this one is Hang On to Your Hats!
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