Chinese refined silver exports may set new record in 2021
In 2020, exports of refined silver from China increased by 38% compared with 2019, totalling almost 3600 tonnes and returning to a level not seen since 2009. China exported record volumes of silver in 2006 and 2007 with shipments of 4500 tonnes in each year. Thereafter, exports fell sharply as the VAT rebate on exports was reduced, before being cancelled in 2010. Silver exports began to recover in 2015 following the issue of permits to some smelters for toll processing of imported silver concentrates. This allowed for the import of concentrates containing more than 3000g/t of silver (later reduced to 2500g/t) without payment of any taxes, with the silver refined from these concentrates exported without VAT being charged.
The sharp increase in silver exports in 2020, mainly due to a surge in sales in the final quarter, reflected three factors. The first was an increase in imports of silver in concentrates for toll processing. The second was an increase in domestic mine production. And the third, and most significant factor, was a widening of the differential between domestic and international prices for silver. The domestic discount to the international silver price began to widen in Q3 before reaching 14% in October. This meant that silver refined in China from domestic ores and concentrates could be exported without suffering a financial penalty due to the imposition of VAT, currently set at 13%. The higher international price fully compensated for the VAT which cannot normally be recovered by Chinese producers when they export refined silver.
In the first quarter of 2021, and with the difference between domestic and international prices still favouring exports, silver shipments were at an annual pace of 5000 tonnes. If sustained at this level China’s silver exports will surpass the previous highest annual total of 4484 tonnes in 2007. A critical question for the global silver market is whether or not China is producing enough silver to sustain this level of exports, or if some of the silver now being exported is being drawn from inventory. Our analysis shows that domestic mined silver production is rising and could increase significantly over the next few years with some attractive projects in the development pipeline. However, current higher refined silver output in China may also, at the margin, be at the expense of production elsewhere in the world as more concentrates with high silver values are diverted to China to take advantage of toll processing. At this stage we do not see any clear evidence that this is a factor, but the situation could change in the future.