Silver consumption in India, the country with the highest demand for the metal in the world, will be cut in half this year. This is the result of the dangerous state of its economy, especially in rural areas. On the other hand, the metal’s current price will force many citizens to postpone their purchases.
According to estimates by the British consultancy Metals Focus, imports from India, the world’s largest consumer of silver, will be reduced to 50% this year compared with the 6,000 tons recorded in 2019.
For now, in the first six months of 2020, the figure has dropped to just 1,735 tons.
One of the factors that weighed the most on the decline of silver consumption is the rise in the local price of the metal. Silver’s value has increased by more than 60% in Indian rupees this year. The rise was driven by the fall in bond yields, the weakening of the US dollar, and the uncertainty about the future of the world economy.
Additionally, numerous businesses have closed due to the restrictive measures to contain the coronavirus pandemic. This has been a blow to the Indian economy. It has caused the loss of million jobs and collapsed the demand for silver.
Two-thirds of India’s silver demand comes from rural areas
The Indian jewelry sector accounts for more than a third of total national consumption. Analysts forecast a reduction in silver consumption in the country of 25%. Also, the manufacture of silver objects is likely to fall by between 30% and 40%.
About two-thirds of India’s annual demand for silver comes from the rural areas of the country, where the precious metal is used as insurance to cope with bad times, due to a lack of banking infrastructure.
Analysts compare this situation with the one in 2011, when the rise in the price of the metal scared off many consumers. They could not afford to buy silver at the levels that were present at the time.
At the end of April 2011, the price of silver had doubled, as it reached $48,700 per ounce. That same year, at the end of July, gold recorded its previous all-time high.
The majority of Indian silver imports came from the UK, mainland China, and Hong Kong. The local market is very modest. The Hindustan Zinc company produces around 600 tons of the precious metal per year, insufficient to satisfy domestic demand.