India's Silver Imports Hit Record High in 2022

(February 28,2023- Debajit Saha)

Head of Precious Metals Research, Indian Sub-Continent, Middle East Region, Refinitiv Metals Team

India recorded the highest ever level of silver imports in 2022, clocking 8,800 tonnes, on the back of the favorable investment sentiment and stock rebuilding by fabricators and retailers. After a dismal 2020 and 2021, when imports dropped to their lowest due to the pandemic induced slowdown, last year’s surge in demand broadly reflected a continued faith of Indian consumers in precious metals as a store of value. Demand expanded across the value segments such as jewellery, investment, silverware, and industrial.

Like other parts of the world, 2020 was a year of despair in India, which witnessed silver demand nosedive.

Total demand dropped to 3,150 tonnes in 2020, more than a half of the level seen in the previous year. 2021 turned out to be a little better, but volumes struggled to return to pre-pandemic levels, as household income was hugely depleted, especially in semi-urban and rural areas. Even in urban areas, those who were better off refrained from buying nonessential items, while festivals were not celebrated with the usual pomp and glory.

Higher silver prices in local currency terms was another restraining factor. People bought silver during this time only to serve immediate requirements, while on the other hand, retailers and manufacturers liquidated existing stocks. We have estimated total demand at 3,750 tonnes in 2021.

CONSUMERS BOUGHT SILVER COINS FOR GIFTING PURPOSES DURING THESE FESTIVITIES. INVESTORS BOUGHT SILVER BARS FOR QUICK VALUE APPRECIATION, WHILE MANUFACTURERS AND RETAILERS RESTOCKED THEIR INVENTORIES, WHICH THEY HAD OFFLOADED IN THE PREVIOUS TWO YEARS.

Looking at last year, the elevated silver price in local currency terms put some pressure on demand during the first four months. As silver prices started to cool down from the month of May, demand accelerated. By that time, it became clear that the conflict between Russia and Ukraine would have a somewhat limited impact on silver prices, while the domestic economy was coming back to its rhythm.

Incidentally, several auspicious festivals, when citizens buy gold and silver, fell during that time. People enjoyed these festivals after a gap of two long years, and naturally the enthusiasm was extremely high.

Silver ETFs

Another aspect of the Indian silver market worth mentioning here is the regulators’ (Securities and Exchange Board of India or SEBI) approval for introducing silver ETFs. Until now, only gold ETFs were permitted.

Silver ETFs attracted an estimated 240 tonnes in its first year of operation, which may not seem very impressive either in value or volume terms, but given that in India an ETF is viewed as a product for informed urban investors, it was considered as a decent start.

Coming to estimating India’s silver imports this year, prices in international markets will play a crucial role. In a global perspective, investors’ interest will continue to centre
around the Fed’s interest rate policy and its immediate impact on economic growth. Gold will remain the preferred asset during periods of low growth or instability.

We believe the silver market may remain extremely volatile in the first half of the year, and we may see the price briefly touch $25.50/oz.

In the second half, if US economic growth stays on track, precious metals prices may come under renewed pressure, and given silver’s innate volatility, we may see the white metal test the $17.50/oz level. We expect the silver price to average $20.75/oz in 2023.

Given this perspective, the silver price in local currency terms may continue to remain at a higher band during the first half, which would prevent manufacturers or retailers from further restocking. Investors will likely stay on the sidelines at current high prices. We have already witnessed the impact of such high prices over the past two months, when inbound shipments stood at 500 tonnes.

Even when the price may return to a more favourable level in the second half, we are not expecting similar demand thrust, since the market needs time to exhaust the stocks accumulated in the last year. We estimate imports could be restricted between 5,000 and 5,500 tonnes this year.

WE BELIEVE THE SILVER MARKET MAY REMAIN EXTREMELY VOLATILE IN THE FIRST HALF OF THE YEAR, AND WE MAY SEE THE PRICE BRIEFLY TOUCH $25.50/OZ.