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Indian silver imports poised for strong recovery

Good monsoon rains suggest a good fillip for the Indian silver market with imports poised to pick up strongly this year.
Author: Shivom Seth
Posted: Tuesday , 06 Jul 2010

MUMBAI -

The annual monsoon rains, a key factor that drives India's economy, has covered the vast country after a sluggish spell, boosting the outlook for farm products and rural income, as well as for precious metals, gold and silver. Global uncertainty has also added its bit and is proving to be a major fillip for the price of silver in India, which shot up by 64 rupees to clock 28779 rupees per kilo, in day trade on Tuesday.

Like gold, silver is sought after as a hedge against dollar weakness and financial distress. In India, good monsoons portend a bullish scenario for silver consumption. Though prices are at near record highs on the Mumbai market, traders expect to see a short term correction in the next couple of days.

On Monday, business activity across the country came to a standstill, as traders pulled down their shutters in response to a 'Bharat Bandh' called by the Opposition parties to protest the hike in fuel prices. With the closure of wholesale commodity markets, the trading volumes declined to a certain extent in futures trade, which remained opened for regular trading. On Tuesday, business was back to normal.

Traders in the bullion market said silver imports into India are set to recover this year from the 1,000 tons of a year ago, though June did not witness any imports of the white metal. In a good year, India can import up to 4,000 tons of the precious metal. Traders pointed out that the surge in silver was based on its traditional role as an investment alternative to gold, with investors seeing silver as providing better relative value.

Analysts maintained that the extra-long weekend and the strength of the US dollar continued to weigh on prices. The Fourth of July holiday and talk of option strikes between $1.2500 and $1.2550, inspired the dollar, lifting it 0.3% versus the euro to $1.2499, depressing commodities.

The silver September settlement contract was trading marginally lower at 28,707 rupees per kg, after having opened the session at 28,680 rupees. On the back of fresh buying by stockists, however, silver made a marginal recovery. Silver futures in the country are also set to extend gains and hit a record high this month, traders pointed out.

In the international market, silver prices have been on a roller-coaster since moving above $10/oz in March 2006. The long rallies have been interspersed with steep and aggressive sell-offs - though none more so than the drop from $21.36/oz to $8.50/oz, between March and October 2008. However, analysts maintain that the strong rebound after last year's sell-off does indicate ongoing steady interest.

Though silver demand in India has been muted this year, silver imports are poised to recover from a first half slump. Traders insist that silver imports could end up around 1,500 tons this year, from the earlier annual position of 1,200 tons.

In Mumbai, the country's main bullion market, the onset of the monsoon saw silver prices touch 30,095 rupees a kilogram on July 1, just shy of the all-time high of 30,400 rupees. Traders also alluded to the GFMS' fundamentals for silver, whereby increased fabrication demand and flat supply, are expected to continue to support the metal's price.

The latest World Silver Survey 2010 by the Silver Institute and compiled by consultancy firm GFMS has noted: ``While the global recession caused fabrication demand to fall sharply in the early months of 2009, a rebound began in the latter half of the year, which has continued into 2010.''... ``Flat supply is expected in 2010, and solid gains in fabrication demand are anticipated, which should buoy prices this year.''