Chinese refined silver production and exports

China’s refined silver exports in 2020, at almost 3600 tonnes, were at their highest level since 2008.?After 2008 silver exports slumped due to the cancellation of the VAT rebate on exports which, in 2008, was 17%.?Although the fall in exports in 2009 was not that severe, likely due to a dispensation that deals signed before the cancellation of the VAT rebate was announced formally would be permitted to go ahead and benefit from the rebate, the true impact of the loss of rebate was evident from 2010. ?Exports began to rise again in 2015.?

Our understanding is that in 2015 a limited number (two?) of lead/silver refining operations in Hunan negotiated a special deal with the local authorities that permitted them to toll smelt and refine imported silver concentrates, with the silver produced exported without VAT.?This scheme was formalised in late 2015 and, from 2016, more producers were able to apply for a licence to toll treat imported silver concentrates.?The effect of this can be seen both in a further increase in silver exports from 2017, and in a sharp increase in silver concentrate imports from 2015.

The sharp rise in refined silver exports in 2020 does not appear to have been the result of higher silver concentrate imports.?Moreover, it does not appear that Chinese domestic refined silver production associated with lead smelting and refining increased year-on-year in 2020 although the China Non-ferrous Industries Association (CNIA) does report an overall increase in China’s refined silver production.?We believe that the increase in silver exports, much of which occurred in the closing months of the year, largely reflected a widening of the arb between domestic and international silver prices to the extent that it was sufficient to offset the VAT “penalty” on exports.?In effect, there was little difference in the net revenue, even after paying VAT on exports to the local tax authorities, between domestic and foreign sales.?With this incentive, refined silver exports in the first four months of 2021 have continued at a very high level and were only 8% lower than in the first four months of 2007, the current record year for China’s silver exports.

We have estimated annual silver production in China produced by refineries associated with primary lead smelting and refining, although we note that several are also part of facilities integrated with zinc and copper production.?More than 20 such operations have been identified producing silver in 2020.?Total production from this subset of silver refiners in 2020 is estimated to have been 7600 tonnes, representing between 70% and 75% of Chinese refined silver production that we can estimate is recovered primarily from non-ferrous ores and concentrates.?

However, we note that there has been quite a sharp fall in silver output from this group of producers from a high of 8650 tonnes in 2018.?Most of the losses have been in Hunan province where key producers involved in toll processing of silver concentrates ran into financial difficulties in 2019 and were forced either to close or substantially reduce output.?Some of these losses were offset by gains elsewhere.

With refined exports rising sharply in 2020 and continuing at a high level in 2021 to date, it appears likely that at least some of the exports may reflect a drawdown of inventory, taking advantage of the current favourable export arbitrage.?Although refined silver production associated with primary lead smelting is expected to increase in 2021, it is very unlikely to return quickly to the high levels seen in 2017 and 2018.?It remains to be seen if current high exports of silver can be sustained.

We estimate that production of silver associated with lead smelting and refining outside China set a record of a little over 9200 tonnes in 2016 before falling quite sharply, especially in 2018, to total just over 8000 tonnes in 2020.?There are several reasons why refined silver output outside China has fallen in the most recent years with the diversion of more high silver containing concentrates to China being only part of the story.?