MUMBAI: It has been an exhilarating few weeks for silver punters. From Rs 8,290 a kg on January 23 to Rs 9,260 on February 6 in Mumbai, and from $5.82 to $7.68 an ounce in London, silver has had a fantastic run -- in sharp contrast to the wayward fortunes of gold. The meteoric rise was prompted largely by the disclosure last Wednesday that contrarian investor Warren Buffett had bought up 129.7 million ounces of silver (or 20 per cent of world's available stocks in 1997). With silver demand rising by 8-10 per cent annually, it seems the good times will last awhile. But will they?On Friday last, the long queues of eager silver sellers in Mumbai and other cities seemed to suggest that profit-booking is in. Family assets, bullion trade inventories and hoarded stocks -- all came tumbling out into the market to cash in on high silver prices.
Those waiting for silver prices to continuously head north had better watch out. The local market is already being flooded with sell offers. Bullion experts say that overthe next fortnight or so, all imports of silver into India will stop completely (1997 imports: 3,800 tonnes) since local supplies will swell to meet demand. The annual industrial demand is expected to be around 1,300-1,500 tonnes. As against this, India's current stock of silver is estimated at a massive 1,11,000 tonnes.
Even in the international markets of Tokyo and Zurich, there have been some large sell offers in silver, which has led to demand resistance at higher levels. Photography majors like Fuji, for example, have preferred to stay away from buying at current levels.
In contrast to international trends, where silver's main industrial use is in photographic films, in India, silver is used more as an edible mixture in sweets, pan masala and gutka (325 tonnes per annum), followed by plating (260 tonnes), jari thread for saris (238 tonnes), pharmacy and chemicals (152 tonnes), brazing alloys (38 tonnes) and photo films (27 tonnes).
Electronic and other miscellaneous uses account for a further 130tonnes each.
The recent price rise in the international silver market, though vastly different in magnitude and fundamentals, reminds one of the Silver Bubble of 1979-80 blown by the Hunt brothers. The Hunts, through their joint speculative deals, took silver within weeks from $ 5 an ounce to $ 54. In India, the per kg silver price had then jumped to around Rs 8,600 from just around Rs 3,500. But after the Hunts got entangled in legal problems, silver soon plunged back to normal. "The stocks cornered then (by the Hunts) and made available later on in the world markets, along with new production, met the world's demand till recently,'' says ML Damani, president, Bombay Bullion Association. "In the past one year there has been a gap between rising demand and slowly reducing supplies. It is this gap which had been identified by overseas big investors and speculators. The current price jump is because of this gap," he added.
The supply line has thinned down due to a large reduction in stocks with the USgovernment. According to Suresh P Sonawala, chairman, National Refinery Pvt Ltd, a local silver refiner, US government silver stocks fell from 200 million ounces at the end of 1996-97 to around 105 million ounces now. Hence the worry about potential supplies.
A New York law firm, Lovell & Stewart, filed a suit in a US District Court alleging that the silver market was being manipulated by the trading firm Philbro Inc and others. However, Patrik Thompson, president of the New York Mercantile Exchange, has denied the allegations.
Notwithstanding the global supply crunch, Mumbai-based bullion expert Madhusudan Daga feels that at the current high levels, there will be demand resistence at least domestically. Any demand from the industrial sector will be met from local supplies.
Rising silver prices have prompted families to hunt for family silver stored in their attics and safe deposit vaults for decades. Says Shailesh Doshi, an eager seller last Friday: "My mother feels it is better to sell off the familysilverware at current rates. And she has financed the marriages of all three of my sisters by selling family silver."
Doshi's is not a stray case. Hundreds of Doshis have been flocking to the refineries in various regions to encash their silver stocks. In Mumbai, for example, the daily inflow of silver from across the country has risen to over 1,500 tonnes from just under 300 tonnes a few weeks ago, says Sonawala.
Says a small bullion trader, who came to sell a bagful of brand new silverware in Mumbai's leading refineries: "At current rates, it is better to sell these slowmoving items, and instead buy gold for which demand is rising."
Even in the Tokyo market, a large-lot selling by a major trading house on Friday completely changed the market mood, and profit-taking gained momentum. Said a Tokyo Commodity Market (TOMCOM) trader. "But prices moderately bounced from the low by closing, thanks to bargain-hunting demand." One party that is watching the silver price rise with mixed feelings is the Mumbaicustoms department. Its stock of confiscated silver is said to be under 10 kg. During the last 10 months, it sold some 800 kg of silver, while in the previous year it sold a massive 23 tonnes, netting over Rs 16.50 crore.
"There is a possibility that export of silverware and utensils may rise," says Sonawala, though Damani does not agree. The difference between international and Indian prices has been high in recent weeks. According to the Bombay Bullion Association, till recently the landed cost of imported silver was higher by around Rs 1,300 per kg compared to the domestic price. Even currently, the landed cost works out to around Rs 10,000 per kg, against which silver of 0.999 fineness closed on Friday at Rs 9,250 -- a difference of Rs 750 per kg. This may attract a reverse flow of silver from the country to cash in on rising global demand.
Bombay Bullion Association says annual silver imports had risen to 3,800 tonnes in 1997 from 2,900 tonnes in 1992. With silver put under open general licencelast year, illegal imports have fallen to negligible levels whereas in 1992 such imports were high at 1,500 tonnes.
According to Damani, the world's annual silver production is around 500 million ounces. This is mainly available from Mexico, Peru, Argentina, Chile, Brazil and a few South African countries. Given the rise in population, and technological advances in the electrical, electronics and chemical industries, the overall demand for silver has risen by around 10 per cent annually. Daga feels that "because of speculators, it is difficult to predict the international situation in silver. But in India there will not be much impact of this, specially because domestic demand will remain at around 1,500 tonnes (per annum)."
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
