The overall demand for silver in India has fallen due to repeated lockdowns by government and steep increase in prices. India, which is the largest consumer of silver products including silver jewellery and silverware, is a very diverse and traditional market. Indian rural areas and economically weaker sections buy the bulk of the silver for gifting and for adornment. With near non-existent demand, jewellery and silverware shops have incurred losses or have been shut. The June silver imports fell 70% year over year to 240t.
The Silver prices have touched an eight-year high in the domestic market. The year to date silver prices is up 36% and roughly 80% higher against the March 2020 lows. Local prices have increased more than Rs.62,000/kg and are now just 16% away from their record in Indian Rupee terms. The price of 1 gram silver as of today is Rs 65.
Indian Industrial demand has also suffered as factories were shut and infrastructure activity stalled. While the government remains confused the industries are in guessing game over lockdown. Even where some level of economic activity is allowed, the industrial units have to operate at limited capacity due to restrictions, such as social distancing norms, and a lack of manpower. With low prices during March and April, there was an uptick in the industrial demand, notably in silver bars and coins. Here again, the government’s confusion in lockdown policy created logistical problems which made it difficult for bullion dealers to fulfil obligations with retail clients resulting in a build-up of products held by these traders.
Silver demand could see an increase due to the upcoming festive and wedding season. However, the government and the increased prices could play the spoilsport. The July monsoon is showing a deficit of 10%, the driest in 5 years as per the Indian Meteorological Department. India could see a repeat of 2010-11 when the silver price surged to record levels, the Indian retail sales were down and the manufacturers reduced purity levels to offset retail price increases.
Lack of labour due to reverse migration and opportunities in rural employment during sowing season has resulted in higher labour charges. As per the industry data company Metals Focus, some medium-sized retailers have already seen labour charges increase by 10-20%.
However, the investment demand is likely to benefit from the price rise. As per Metals Focus report “by comparison, investment demand is likely to benefit from the price rise. Our discussion with bullion dealers, in key consuming regions, has revealed strong investor demand. While this interest is likely to remain high as we approach the 2011 highs (in rupee terms), there is a significant risk of profit-taking by those investors who were unable to liquidate during the 2011 price crash.”
There could be a silver lining in the Indian Industrial demand for silver since it is usually price inelastic in the short term. But there is a lack of demand due to the Modi government’s inability to control the Pandemic and resultant lockdowns. As per Metals Focus ” In particular, our discussions with industrial fabricators point to a sharp drop in electrical and electronics demand and also in the “other industrial” segment, which includes jari, plating and varak.