Will silver recycling dampen on falling prices?

Columns  |  2011-05-05 09:34:11   |   By

Silver recycling which witnessed a flurry of activity across the globe recently is set to weaken if prices fall back to $30 levels as forecasted by some analysts

by Sreekumar Raghavan
Soaring silver prices that reached record levels of $50 per ounce had once again kindled interest in silver scrap recycling. The trend was seen in many major silver consuming nations including USA and India but it is likely the trend could be reversed if silver prices is unable to recover after touching a possible $30 in the current downturn, analysts said.

Silver fundamentals may remain impact on robust industrial demand, investment demand and global inflation that attracts investors to precious metals. However, silver futures have slumped to $38 levels at New York Comex after rising 57 percent in 2011 as the exchange raised the margins for silver trading by 84% whichis is set to go even higher. The minimum amount of cash that must be deposited when borrowing from brokers to trade silver futures will rise to $21,600 per contract after May 9, CME Group Ltd, Bloomberg reported.

With rising silver prices in the past few weeks, silver jewellers were offering to buy back silver and US silver refiners suchas Ohio Precious Metals LLC were flooded with scrap silver that came for processing from custormers. In March one single coin dealer brought more than 200,000 ounce of silver for recycling to Ohio Precious Metals, its owner told a news agency recently.

GFMS had forecasted a rise in scrap silver in 2011 making up more than a fifth of the world's overall supply, after a 15 percent jump in 2010. With silver mine supply unable to be ramped up fast, the rising demand was being met through supplies from consumers and industrial recyclers.

However, if prices were to weaken to $30, the charm of recycling silver erodes and the market could witness subdued activity, analysts point out. Those owning silver may take a wait and watch attitude to see the direction of silver markets rather than rush to sell oldware now.

In India, silver imports may rise to 5000 tonnes from the 3030 tonnes recorded last year. India's silver imports rose to a record high of 5048 tonnes in 2008 before slumping to 1,285 in 2009 and it has rebounded again.Rising silver prices had led to growth in recycling in recent months according to silver refiners in the country.Silver recycling from scrap has risen sharply in recent years with 558 tonnes recorded in 2010, a jump of nearly 2.8 times from the 2001 figure of 200 tonnes, GFMS data showed.

This year, India has imported 400 to 500 tonnes of silver since January, according to the Bombay Bullion Association down from 600 tonnes a year ago.

Strong investment demand has prompted MMTC, the country's largest bullion importer, to almost double its planned silver purchases in the financial year ending in March 2011.