Chinese Silver Inventories Nearly 90% Depleted At Shanghai Futures Exchange

Chinese silver inventories grow increasingly tight as stocks at the Shanghai Futures Exchange continue to fall to record low levels.  It is truly amazing to watch how much silver inventories declined at the Shanghai Futures Exchange since March of 2013.

It’s important to understand that the Shanghai Futures Exchange as well as the Shanghai Gold Exchange behave more as a physical delivery market than the COMEX.  I was speaking with Chris Marchese, analyst at Silver-Investor.com on this very subject.

I don’t spend a lot of time researching or analyzing the trading behavior in the silver or gold futures market.  Chris went onto say the most of the silver and gold contracts at the COMEX are settled in cash, whereas the vast majority of contracts on the Shanghai Exchanges are settled in physical metal.

Which is probably the reason we are seeing a huge draw-down of silver stocks at the Shanghai Futures Exchange.

Let’s first look at what took place at the Shanghai Futures Exchange during the month of July.  On July 1st, there were 234 metric tons of silver held in warehouse stocks.  However, in the beginning of the month and especially during the last two weeks, there were large withdrawals.

Shangahi Silver Stocks July 2014

As you can see, by the end of the first week of July, silver inventories fell 30 metric tons (mt) from 234 to 204 by July 4th.  There were some small withdrawals and deposits over the next several weeks, but the net change amounted to a 12 mt withdrawal by Friday, July 18th.

Then in the last two weeks, withdrawals picked up considerably.  There were 23 mt removed by the week ending July 25th and another 21 mt during the last week of the month.  Here is a screenshot from the Shanghai Futures Exchange website showing how much silver was withdrawn on Thursday, July 31st:

Shanghai Silver withdrawal July 31 2014

In one day, 15 metric tons (15,278 kilograms) were removed,  which accounted for nearly 10% of remaining silver stocks.

While withdrawals of silver from the Shanghai Futures Exchange were substantial during the month of July, if we look at a more longer-term chart… its even more impressive.  At peak inventories, the Shanghai Futures Exchange held 1,143 mt of silver in March, 2013.

Shanghai Silver Stocks 2013 & 2014

After the PAPER SMASH in the price of silver in April, we can see just how fast inventories declined.  By August, 2013, silver inventories at the Shanghai Futures Exchange fell 610 mt to 533…  a staggering 53% decline.  Inventories continued to fall, but a slower pace until they reached a low in November at 418 mt.

Then over the next three months, there was a build of silver stocks to a high of 575 mt in February, 2014.  Interestingly, the price of silver and inventories at the Shanghai Futures Exchange both increased during the same time.  As the price of silver went from a low of $19 at the beginning of February to a high of $22 at the end of the month,  silver stocks increased by 84 mt (491 mt to 575 mt).

Once the price of silver started correcting lower, inventories declined in March to 417 mt, and then a huge fall to 246 mt by the end of April.  In May and June, silver inventories remained relatively flat as spot price bottomed then headed higher in June.

When June rolled into July, once gain, the price of silver headed lower right along with the decline in silver warehouse stocks..  Another 86 mt were withdrawn in July as inventories are now the lowest level (148 mt) they have ever been.

In a nutshell, silver inventories declined nearly 90% from their record peak set in March, 2013.  The Shanghai Futures Exchanged experienced a net decline of 995 mt from March, 2013 to the end of July this year.

Lastly, Chris stated that trading volume on the precious metals exchanges are heading East to Asia.  He said that trading volume the Shanghai Futures Exchange and Shanghai Gold Exchange are nearly 3 times higher than the volume at the COMEX.  Investors are beginning to realize the COMEX is nothing but a paper rigged market so they are moving to Exchanges where one can actually acquire PHYSICAL DELIVERY.

Things seem to be getting quite interesting in the precious metal markets.  I discussed this in my recent article, Three Signals For A Huge Silver Spike In 2014.  If you haven’t read the article… it’s worth a look.

Next week I will be publishing diesel consumption figures for the top 5 gold miners in 2013.  It took some time, but after a few phone calls, I was able to acquire the remaining data necessary to complete my charts.

Please check back for new articles and updates at the SRSrocco Report.  You can also follow us a Twitter below:

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33 Comments on "Chinese Silver Inventories Nearly 90% Depleted At Shanghai Futures Exchange"

  1. Steve, thank you for all your hard work and investigative reporting. Eye opening, to say the least!

    The COMEX is fast becoming redundant as a price discovery mechanism, for not only precious metals, but other commodities as well. The naked shorting and fraudulent actions has finally come out into the bright light of investigative reporting by individuals such as yourself. I foresee the day in the not too distant future, when the discovery price of most commodities, will be ‘set’ in the far east.

    Looking forward to your diesel usage report.

  2. I will hazard a guess that diesel consumption in gallons per ounce produced has tripled in just the last decade; as for cost, perhaps quintupled.

  3. Thanks again Steve

  4. Thank you,i appreciate your work and always learn from it. Enjoy the weekend.

  5. Danke für diese Info , bin echt begeistert von diesen Beitrag ! Warte ungeduldig auf den Diesel-Bericht ! Gruss aus Deutschland(München).

  6. When are they going to address the COMEX?

    It is proven very well that naked short selling is very prevalent especially in the commodities – precious metals. They have naked short selling going on very frequently and regulators are giving lip service.

    Andrew McGuire, a person who professionally has covered gold and silver for over many decades has documented this factually. Legions of groups have also factually presented information about this ILLEGAL activity.

    The COMEX is a paper derivative vehicle based on leverage – it should be a 1:1 Paper to Physical period and naked shorting should put groups who place those trades in jail for many years.

    That is why many have distrust for this market: It is corrupt.
    Above the ground physical Silver is being consumed at a much faster rate 1.1 billion oz plus minus .1 per annum. Chinese silver inventories are declining. India is purchasing much more silver in the last two years. Silver was 50 dollars in 1980 and now it is 20. That is paper and derivatives not reality.

    Think about it – your using 2x as much silver or more and you have more industry worldwide with middle class migration and technology changes and you have 40 percent of the 1980 price?

    Something is very wrong here. There is illegal activity going on the short side of both collusion and naked shorting stuffing the channel so they can buy physical at irrational prices.

    At 10x (Paper) to 1x Physical Silver- they are shorting paper, collecting the difference, and buying back physical at the manipulated price. They profit both ways and screw the miners, mining companies, and legions of minor players. Livelihoods are being destroyed by this methodology.

    I call it gluttony by a few very big players. It is way way overdone.

    • Christopher Marchese | August 2, 2014 at 10:00 am | Reply

      The Skeptic,

      There is nothing wrong with Naked Short Selling. The largest commercial traders both 4 and 8 and seen in the COT and Bank Participation Reports aren’t breaking any rules. All that is necessary is to meet margin requirements. Beyond that, given the massive amount of excess reserves in the banking system, should silver spike very quickly to unthinkable levels, the 4 largest traders, which currently looks like JPM, HSBC, Goldman and another in the silver market, alone could create roughly 2-4 trillion (just using numbers off the top of my head based on size, the amount of excess reserves and the money multiplier) solely through fractional reserve banking and making loans to one another.

      That aside, the OTC market dwarfs the size of the visible market, theoretically, all these banks could be net long. Remember these are no reporting requirements OTC, so no one knows the exact position of any bank. Further complicating things are future options OTC , forwards, swaps and most importantly structure products. Structured products are very misunderstood except by those well versed in capital markets. They are actually very simple at their core. To understand the net position of going long or short a structured product, one needs to replicate said product using basic financial instruments (common stock, treasuries, futures, future options, etc). Regardless we aren’t privy to the position the largest commercial bank have OTC.

  7. Really solid data as always Steve, If my math is correct Steven Leeb is reporting that China’s announcement of 70 Gigawatts of solar power by 2017 uses about a gram of silver per watt. Believe the number of 268,000,000 million oz added to the demand curve. Evenly spread that would be about 8335 tons, or about 173.6 tons per month over a 48 month horizon. Thats a strong increase in demand and may signal that Shanghi is going to be the major phyiscal conduit for awhile.

    The price move in silver has really been counter intuitive lately with the demand. Again standard cartel trick to dampen demand by capping price…..

    Whats you take on this demand source? I haven’t heard a lot of comments on this by many other commentators so you always wonder if Steven has the handle on this as he implys. Got to admit he is the one that got me on the road to Peak Oil in the 90’s so he still has cred for me.

    http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2014/7/5_A_Price_Move_Into_The_Stratosphere_For_Silver,_Gold_%26_Oil.html

    I know its KWN but interview at same time fleshes out the data a bit more. Worth the listen IMO

  8. I do not think that the information above is wrong but I do not feel that it is so significant. One thousand tons of silver is but two weeks of annual mine supply – if that.

    Neither do I believe that the COMEX manipulate the price of silver, or gold for that matter. This is not possible. The physical markets are as always governed by the laws of supply and demand.

    What the COMEX does allow is the manipulation of the price of paper silver and paper gold. Because, incorrectly, people do believe that somehow the price of paper gold and paper silver are related to the price of physical metal this in turn affects sentiment in the physical market. After all people only buy gold as a store of wealth, inflation protection and a safe haven asset (OK jewellery if you like the yellow shiny stuff). Silver is bought as an industrial metal but with increasing “investment” demand.

    Manipulate the sentiment in both metals and you can reduce investment demand and as a desired side effect the price of physical metal.. As gold is basically an investment metal this must also be accompanied by a release of real metal into a price reduced physical market otherwise reducing sentiment is of limited value in the face of Eastern demand. This seems to have been happening according to some commentators and analysts. Silver of course is still over produced (just) as physical demand is below supply when you exclude investment demand. Perhaps there is still some stockpiled silver being released into the market to assist the sentiment manipulation but it cannot be much now?

    In short, like most things monetary the price of physical metal is governed by belief. An upswing in the belief of the value of silver amongst investors is the most dangerous from the perspective of those who would like it not to be in the way of those who play with paper.

    • So your telling me that COMEX is not 10x to 1x (Paper to Physical) ?

      So if everyone were to claim the physical at one time – what do the other 9 claimee’s do?

      It is mathematically flawed.

      “Have you not heard a run of the banks” … Well this would be another version of it.

    • “Neither do I believe that the COMEX manipulate the price of silver, or gold for that matter. This is not possible. The physical markets are as always governed by the laws of supply and demand.”

      The Comex is highly manipulative and manipulated, and those that run it highly complicit. Follow Ted Butler’s documentation; he has the proof.

      The physical markets are not currently controlled by supply/demand; that is well proven also. And the Comex has little to do with physical supply/demand anyway.

  9. Carefix don’t agree with much you say first of all its 2083 tons annually for solar if it takes the full 4 years. We are already nearly 2/3’s thru this year and I don’ t know how much has been started. If you call the market 1 billion oz a year then its closer to 7% of annual supply or 9% if you call supply 800 million oz. In a market that is already 200 million oz in deficit I think thats significantly more demand.

    Have to laugh if you think the laws of supply and demand are at work in the silver market except maybe more supply will be demanded at lower prices…..that is for sure. Right now the market is not letting price ration demand by going higher. We in the west are stealing silver thru the price manipulation. I believe Steve indicated in a previous post the US is importing in excess of 150 Million oz a year….Since a great deal of that is at or below cost it is a form of theft via the selling of excessive amounts of fake paper silver and driving the price down. May they rot in hell!

    But thanks for posting your thoughts

    • Kansas Crude,

      You do not quite get where I am coming from. I am explaining the mechanism of price manipulation i.e. via investment sentiment. Without any investment demand both metals would be in gross over supply, especially gold. Supression of the paper price leaks through to investment sentiment in physical metal because people, most people, believe the two are somehow connected.

      When people stop believing the connection, investment demand will skyrocket. Paper manipulation makes the markets potentially volatile, but this will only seriously manifest when perceptions change.

      The laws of supply and demand are indeed at work. Demand is reduced through sentiment manipultaion via derivatives. It is this above all else which controls the price. It is mental manipulation. Nobody is going along to a big stack and changing the price tag. That is not how it works.

      If the Russians (say) decided to buy 10,000,000 ounces on the COMEX and stood for delivery either the price would go up or the contracts would default to payment in dollars. That is the next big step in the end of the paper “price” manipulation.

    • OK. 27,000 tons annual production. Last year there was a shortfall in mine supply so the balance came from stockpiles. I had it as 260 million ounces. There are some really nice people out there who were prepared to make silver available cheap to stackers by unloading their stashes at prices well below what they could actually have got if they had held on and waited for the price to rise….

      • There are two sorts of manipulation. Big dumps inspired perhaps by the FED and everyday manipulation. The latter is done by the flash boy HFT traders. They can make money by moving the price up and by moving the price down. Essentially they are neutral (or at least were). When it comes to the annual pay review however, the big boss might make negative noises about the price of silver remaining at a high levels and saying ” this isn’t good for the bank”. The flash boy decideds therefore to move the price down on average to keep his paymaster happy. It is probably just a change in the value of some variable in an algorithm somewhere…

        It does not have to be explicit – but it looks like it is becoming so to the extent that the best time to buy metal is on Thursday, after the 3:00 pm London Fix right now.

  10. With demand near all time highs and inventories shrinking, time is not on the manipulators’ side and they know it. Doesnt mean this is over next month, keep stacking, keep lliving your life knowing one day all your patience will pay off in ways you could never imagine.

  11. Miners are at below All in costs . That causes supply side to shut down. It is happening at these price levels.

    You are going to have 9-10 billion people by the year 2050.
    In 1960 – we had 3 billion
    In 2000 – we have 6 billion
    By 2050 – We will have 10-11 billion people

    In 1980, Silver was 50 dollars. We have more than doubled the population since that time.
    Those people have more uses for silver such as iPads, iPhones, Electricity, Food Processing and Solar.
    Recycled silver has been used up at torrid pace
    Reserves from governments are diminished substantially
    Middle Classes are ascending world wide now and technology is moving faster and faster.

    The Paper market is driving this down – Not the physical.
    They are shorting the Paper, taking those profits and buying the physical. Many are naked shorting the space in the process. MANY.

    It is not rocket science.

    When the big players are ready – then they will drive it up substantially and sell.

    • Mostly agree with what you write. But I think financial & societal upheavals, plus shortages of food, water, energy, and/or personal income to acquire these basic needs will result in a stop to global population increase. People may not voluntarily reduce the number of children born, but if not there will be population attrition. Let’s just say the average lifespan will drop considerably. By the way that is already happening in the U.S., although poor lifestyle & dietary choices, along with too much consumed medication are largely to blame.

      “When the big players are ready – then they will drive it up substantially and sell.”

      Yes this could happen, but just as likely artificially low prices for the physical [mostly used by industry but will be jumped on in the future by savers/investors] may result in severe physical shortages that break the ability to manipulate the market through ETF’s, etc.

  12. This is my first visit to this website and the information supplied is very interesting and appreciated. I have one basic question, and I apologize if it has previously been addressed. How do we know that the reduction in the quantity in silver is due to it going to different buyers as opposed to it being withdrawn by the original seller when the price goes too low? If it is the latter, the silver will become available as the price goes higher and it is not being consumed.

    • A visual is a lot better then words
      http://www.youtube.com/watch?v=jRwUmGpmF38#t=100

      You have 10 billion people in 2050. Silver is not a nice to have but a necessity.
      I ask a very simple question – Do you need electricity, computers, mobile phones, semiconductors, appliances, food processing equipment, medical devices/instruments, solar devices, and bandages?

      You get my very clear point. It is not a nice to have commodity- it is life blood.

      All manipulations end and this one will be something when it does. Dynamics of Change are happening much faster then people realize. Technology and the middle class is no longer a 5 percent of the world’s population equation – it is moving in both size and velocity.

      Then we have the whole currency issue to talk about …… saved for another day.

      To the point that no one can dispute:
      Technology is moving faster
      You will have 3 to 4 billion more people
      They need the above mentioned in modern middle class societies worldwide.

      Don’t believe me – look at solar in the last 2 years, iPads, mobile phones and Tesla
      Technology is moving fast and electricity is part of it.

      Silver is a necessary part.

      One more question to all: What if the mexican peso is backed by a silver standard? What wheels in motion will be set in play?
      Not too many talking about it today – but it is right under everyones field of vision of the trees they are looking at.

      You go where the puck is going – not where it has been.

    • Vermeil,

      You bring up an excellent question. While gold and silver will become available at much higher prices, I believe it will be a fraction compared to the huge future demand. I don’t know if you heard this, but some high level trader revealed on one of the financial networks (maybe CNBC), that when he visited the LBMA vaults several years ago, he said the gold was piled high to the ceiling. However, when he took a tour recently, he was quite surprised that the vaults were empty.

      That gold found its way to China, other Eastern countries as well as the Middle East. We are witness the collapse of the Western Financial Empire and the Rise of the Eastern Physical Economic System.

      Nothing happens overnight, but at some point in time, it will seem that way. One day we will wake up and Americans will realize they are now just another third world nation.

      The best time to acquire physical gold and silver is before this EVENT takes place.

      steve

  13. The basic problem with a discussion about the COMEX operation and Shanghai IS the preferred settlement. The COMEX players look at the “silver market” as a dollar play and not a source for silver (and virtually none would want to rock the boat). Users go to the spot market, mines or dealers for silver – and certainly includes Chinese buyers who want the operation to stay a dollar play. The Shanghai does not compete with this (the COMEX was designed to rig prices) so there is no real impetus for Shanghai setting the price rather than the COMEX…I might even be tempted to say that if Shanghai DID lay claim to the world price setting market, some sort of false flag disaster might surely occur there forthwith. We should keep in mind that should Shanghai (or any other market) upset the COMEX tyranny and open the market to supply fundamentals (as shown in Steve’s piece) – and especially if this were done with gold – the lunatics in the US State Department would start to treat China like they did Iraq, and Iran, and Libya, and, well, you get the idea.

    I have no doubt that the irrational nature of the White House and its insane foreign policy is known by the Chinese (and anyone following this with half a brain) and their additional worry would be that the USA would target them for war. We should understand that there is a timeline for the USA accomplishing its mayhem with Russia and China (the Ukrainian crisis) that is only somewhat longer than that which Kiev is under…..

    The threat of nuclear war has never been greater than at this time…And that is another reason for the draw-down out of Shanghai.
    FWIW,
    Galearis

  14. So what happens in approx. 2 months when silver inventories go under 75 million oz.?

    This is a physical market, so they Shanghai can’t just can’t create an SLV and conjure up paper metals?

    What ramifications will this have on the silver markets?

    • Mike F,

      I have to believe London precious metal trader Andrew Maguire who is interviewed on King World News. He believes the wholesale physical gold and silver markets are very tight. Which is why we are seeing a draw-down in metal in inventories at the Exchanges that allow for delivery… not the CRIMEX.

      At some point in time, the physical metal trading will override the paper trading… and then we enter into a whole new world.

      steve

  15. SRS Rocco
    Than you for your reply. I have been following PM closely for a number of years, just not on this site – so I am aware of what is going on. I appreciate your comment since it helps in my evaluation of the data.

  16. Tore Johansson | August 4, 2014 at 8:35 am | Reply

    What do those numbers means comparing to the world supply of about 25000 tons of silver ?

  17. One Indian solar plant project that costs $4B announced earlier this year will need 20 million ounces of silver per year. But once in production, the silver is producing electricity and not like the ones stored in the vault doing nothing. The future of silver lies with solar production. It takes up a much a larger size vault to store silver bars if solar plant is not a reality. Based on the current gold:silver price ratio of 60, it takes 60 times more space to store the same value of silver. That is why silver has a far better future than gold simply because it only sleeps 8 hours a day but 24 hours a day for gold.

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