A structural shock is hitting the global silver market
Global silver markets are entering a period of acute stress, driven less by speculation than by tightening physical supply and rising industrial demand. While prices have surged sharply, the underlying forces point to a genuine structural imbalance rather than a purely financial rally.
At the centre of the shift is China, which from 1 January 2026 will impose new restrictions on silver exports. Under the proposed regime, only large, state-approved producers will be permitted to export refined silver, and only after securing government licences. Eligibility reportedly requires annual production capacity of at least 80 tonnes and verified credit facilities exceeding $30m.
If implemented as described, the rules would effectively exclude many small and mid-sized exporters that have historically supplied global refiners and industrial users.
China’s influence is critical. It accounts for an estimated 60–70% of global refined silver output, meaning even partial restrictions have immediate global consequences. The move echoes Beijing’s earlier approach to rare earths, where tighter export controls reshaped global supply chains and pricing power.
A deficit that predates China’s move
Even before the export announcement, the silver market had been running persistent deficits. For five consecutive years, global demand has exceeded total supply.
Estimates for 2025 suggest demand of around 1.24bn ounces, versus total supply of roughly 1.01bn ounces, leaving a deficit in excess of 200m ounces. That shortfall is significant — equivalent to the annual output of the world’s largest silver-producing country.
Silver supply is structurally constrained. Most silver is produced as a by-product of copper, zinc and lead mining, meaning higher silver prices alone do not quickly translate into higher output. New mining projects typically take 8–12 years to bring online, while ore grades continue to decline. Recycling contributes meaningfully, but volumes have been broadly flat for years.
In short, there is no rapid supply response available.
Inventories are being drawn down
The strain is increasingly visible in inventories. Reported stockpiles in major markets have been falling steadily:
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COMEX registered stocks are down sharply from 2020 levels
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LBMA vault holdings have also declined materially
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Shanghai inventories are reportedly near decade lows
This has coincided with widening premiums for physical silver in parts of Asia, a sign that buyers are prioritising guaranteed delivery rather than paper exposure.
That said, claims of extreme paper-to-physical ratios (often cited at several hundred to one) should be treated carefully. While futures markets are unquestionably leveraged, not all contracts represent immediate delivery claims. Still, declining inventories increase the risk of volatility if delivery demand rises unexpectedly.
Industrial demand is the key constraint
Unlike gold, silver is primarily an industrial metal. Around 50–60% of annual demand now comes from manufacturing and technology uses, including:
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Solar panels
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Electric vehicles
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Electronics and semiconductors
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Medical applications
Silver’s physical properties — especially conductivity — make substitution difficult. As a result, demand tends to be price-inelastic: manufacturers continue buying even as prices rise.
Longer term, electrification trends suggest demand will remain firm. Forecasts that solar and EV applications could absorb a much larger share of global output by the end of the decade are plausible, though exact figures vary widely by source.
What changes from here?
The combination of export controls, falling inventories and resilient industrial demand suggests silver is undergoing a structural repricing, not merely a cyclical rally.
However, markets are also thin and volatile — particularly around year-end — and sharp corrections should be expected. Margin changes, profit-taking and liquidity gaps can all amplify short-term moves, as recent price swings have shown.
What does seem clear is that the era of consistently cheap silver is over. Supply constraints are real, investment has lagged for years, and industrial demand is not easily reduced.
Whether this evolves into a prolonged crisis or a high-volatility transition period will depend on how export rules are enforced, whether inventories stabilise, and how quickly alternative supply chains can adapt.
But the direction of travel is difficult to ignore: silver is no longer abundant, and the market is being forced to price that reality in.
