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Declining Chinese Exports: Will It Impact Silver?

Posted on 2012-11-05, By A-Best Staff
By Michelle Smith–Exclusive to Silver Investing News

china demand silver investors

Markets have been gripped by tunnel vision. Recently, investors have focused their attention on Europe, occasionally glancing up at road signs pointing to the US before they turn their attention back to the Eurozone. In doing so, it appears silver investors may have missed some important developments out of China−exports and their contribution to economic growth are currently declining.

Last Wednesday Wang Shouwen, Head of China’s Foreign Trade Department said “foreign trade is facing a severe situation next year.”

Silver investors, if aware, showed little concern about this news. Instead, attention was captured by the European summit and what would come from it.

CME Group’s Friday morning silver market report said silver looks to take a lot of direction from the ultimate “risk-on” or “risk-off” environment that could present itself in the wake of the EU summit dialogue.”

Though it may be premature or even unnecessary to make moves based on the announcement about Chinese exports, it too can be seen as a risk and certainly should not be dismissed as irrelevant to silver investors.

China has displayed a ravaging appetite for the white metal over the past several years, changing from the suit of a net exporter to a net importer, and thereby increasing its significance in the market.

Though the nation has seen a strong domestic demand for silver, both for investment purposes and through the sale of silver-based goods, China’s economy, like its exports, is reportedly cooling down. Also, it must be remembered that Chinese manufacturers consume a lot of silver in making products for foreign markets, such as electronics.

China’s fabrication demand for silver this year was projected to exceed 177 million ounces, according to CME Group. Silver investors may now want to start considering whether declining exports may have negative effects on demand going forward. Solar panels, which have been noted as one of the bullish emerging applications for the metal, may be a product that highlights that possibility.

Chinese companies are major suppliers and spend $2 billion importing raw materials including silver paste to construct solar products. The largest solar panel markets, however, are in Europe. According to Bloomberg, tightening credit lines in the industry have begun to translate into curbed demand for these products.

Further threatening to weigh on Chinese solar exports are allegations in the US that China’s manufacturers are jeopardizing the US solar industry with unfairly cheap products. North America is China’s third largest solar market, importing $3.5 billion worth of related goods last year, but now a group of solar companies have petitioned the US government to impose hefty tariffs on Chinese solar products.

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