Silver bar demand drops due to demonetisation, high prices

The biggest decline recorded in bar and coin investment, which fell 29% to 206.8 Moz.

The Dollar Business Bureau 

The government’s demonetisation move last November to crackdown unaccounted money along with the higher prices affected the demand of silver bar in the country leading to a drop in global silver bar investment by almost half in 2016, said a survey.

In 2016, silver mine production globally witnessed its first drop since 2002, declining by 0.6% last year to an overall of 885.8 million ounces (Moz), said the World Silver Survey 2017 that is released by Silver Institute and published by the GFMS Team at Thomson Reuters (GFMS) on its behalf.

A major proportion of the decline was due to the zinc/lead and gold segments, where output dropped by 15.9 Moz.

Overall physical silver demand fell by 11% in 2016 to 1,027.8 Moz, pulled lower by weak silverware, jewellery and retail investment, the report said.

The biggest decline was recorded in bar and coin investment, which fell 29% last year to 206.8 Moz, with a fall in purchases in India that makes up for the bulk of drop.

It further stated that there is a decline of 9% in coins and medals fabrication to 123.2 Moz last year, from its peak in 2015.

“Silver bar investment fell by 46%, mainly the result of lackluster demand in India due to a combination of higher prices, destocking and government measures on unaccounted wealth,” said the survey.

Jewellery fabrication also declined 9% to 207 Moz last year, lowest in the last four years, as high prices and declining economic conditions led to lower consumption in major markets, mainly in India and China, which both decline sharply, the survey added.

The demand for silver bar weakened much higher than the coins, with offtake falling by 46% to 83.6 Moz.

The drop was mainly dominated by particular characteristics of India’s market, which made up about 53% of world’s bar demand in 2015.

Last year, the demand in India was lower by two-third, representing around four-fifth of the global drop.

This is due to a combination of factors including high prices, government steps on unaccounted money and destocking.

The Dollar Business Bureau - May 15, 2017 12:00 IST