China's silver premium reaches $8.71, with domestic spot prices 10% higher than international prices.

China’s domestic silver spot price has shown a significant premium, currently approximately $8.71 above the international benchmark price, representing a premium of nearly 9.86%. This spread is driven by structural factors such as strong physical demand in the industrial side, import logistics bottlenecks, and capital controls, reflecting the continued tension between supply and demand in China’s silver market, with global silver traders closely tracking related inventory movements and arbitrage opportunities.

The cause of China’s silver premium: multiple thrusts of supply and demand imbalance

China dominates global silver industrial consumption, with solar photovoltaic manufacturing and electronic component production being the two core sources of demand. Silver is irreplaceable in photovoltaic cells due to its high conductivity, and the recent acceleration of China’s renewable energy expansion plan has further amplified the intensity of procurement. Strong export orders from the electronics manufacturing industry have simultaneously pushed up factory output, creating continuous physical consumption pressure.

When industrial buyers face immediate supply demand, they often choose to purchase directly at a price higher than the market equilibrium rather than waiting for the arbitrage mechanism to automatically correct the spread.

Four structural factors driving up China’s silver premium

Photovoltaic manufacturing procurement surged: Solar panel production continues to expand, silver is a key raw material for photovoltaic cells, and demand is rigid

Supply-side increments are limited: Rising mining costs in major mines around the world and delays in project approvals make it difficult for new production to catch up with consumption growth

Logistics and refining bottlenecks: The lengthening of the transportation cycle directly pushes up the regional spot premium, and the time for international silver to arrive at Chinese warehouses is extended

Import control and capital control: Import quota restrictions and capital control measures to slow down the implementation efficiency and capital flow speed of cross-border arbitrage

Arbitrage mechanism is blocked: capital controls delay the convergence of premiums

Under normal market conditions, arbitrage traders will quickly intervene, buying silver in the low-price market and selling it in the premium market, automatically narrowing the cross-market spread. However, China’s capital controls and regulatory frictions have significantly slowed the operation of this correction mechanism, resulting in this premium being maintained for longer than in the past.

Currently, the global silver market is closely tracking the inventory trend of physical silver flows into China. If international supply fails to replenish domestic inventories in a timely manner, the existing premium may further expand; If imports increase to repair the gap between supply and demand, there is room for the premium to narrow.

It is worth noting that the role of exchange rate factors in this premium is relatively minor. Although exchange rate fluctuations can amplify local premiums, the current nearly 10% premium is significantly beyond the normal exchange rate adjustment range, indicating a deeper structural imbalance between supply and demand behind it, rather than a simple foreign exchange pricing effect.

Frequently Asked Questions

Why is China’s silver premium as high as nearly 10%?

This premium is formed by multiple factors, including physical procurement driven by the surge in demand for photovoltaic manufacturing, limited new supply from mines, lengthening the import logistics cycle, and the delayed arbitrage correction mechanism for capital controls. The above factors collectively compressed domestic available inventories, pushing up spot quotations higher than international benchmarks.

What does the $8.71 premium mean for the global silver market?

As the world’s largest silver industrial consumer market, China’s continuous premium reflects structural pressure on the global supply system. If international inventories continue to flow to China to fill the gap, global benchmark prices may be pulled upward; On the contrary, if imports increase to repair domestic supply and demand, the premium is expected to gradually narrow.

What key metrics should traders and investors track?

Key observation indicators include: real-time price differentials between Shanghai and London spot silver, silver ETF inventory data, China Customs silver import statistics, and the forward discount structure of the futures market. These indicators can reflect whether the premium trend continues to expand or enter a convergence phase.