Ever since July, there has been some interesting changes in the COMEX and Shanghai Futures Exchange silver inventories. The increase in physical silver investment demand that surged in July, had a direct impact on COMEX silver inventories.
As we can see from the chart below, total COMEX silver inventories peaked in the beginning of July at 184.5 million oz (Moz) and then continued to decline, reaching a low of 159.9 Moz presently. The majority of the declines came from the Registered category (the category that represents inventory that is available for delivery into the market).
Now, while COMEX silver inventories continued to decline, the opposite took place at the Shanghai Futures Exchange (SHFE). SHFE silver inventories bottomed on August 18th at 233 metric tons (mt), then continued to grow over the past three months to the present 528 mt.
Thus, silver inventories at the SHFE more than doubled since Aug 20th, while the COMEX inventories continued to decline. Why is one exchange building silver inventories while the other is falling?
As I stated in earlier articles, I believed Industrial silver demand was falling, especially in the second quarter of 2015. This seemed to have picked up speed in the third quarter and is falling to a higher degree towards the end of the year. According to the recently released Silver Institute 2015 Interim Report:
total industrial demand is forecast to fall by 4% to 570.7 Moz, and to account for 54% of physical demand in 2015.
I have been a broken record disputing the notion of growing Industrial silver demand. While most analysts have published reports showing increased growth in the Industrial sector, I stated it will do the opposite by extending declines going forward.
Here are the figures for Industrial Silver Consumption (Silver Institute):
2013 = 601.7 Moz
2014 = 595.2 Moz
2015 = 570.7 Moz
Industrial silver consumption will continue to fall in the future. Sure, we could see a brief pop in consumption for a year or so, but the overall trend will be lower. So, all the investors or analysts who are forecasting the future silver price based on industrial demand… WAKE UP. Forget industrial demand and focus on physical investment demand. That will be the key going forward.
I have read several independent reports showing how Global Industrial Silver demand would increase over the past several years. For example, here is a chart from a CRU Consulting Report for the Silver Institute on the growth of Industrial Silver Demand. It was published Dec 2014:
The industrial silver demand figures in CRU’s chart show a bottoming in 2013, then reversing higher all the way until 2018. Well, according to Thomson Reuters GFMS, industrial silver demand fell in 2014 and is forecasted to fall another 4% in 2015. So, the data in this chart is off by…