Silver prices in China climbed sharply in late December as spot contracts on the Shanghai Gold Exchange settled above futures prices, signalling a rare and pronounced backwardation.
Market data showed the Ag(T+D) spot silver contract closed near 19,400 yuan per kilogram on 24 December, equivalent to roughly $78.55 per ounce.
At the same time, near-dated silver futures on the Shanghai Futures Exchange traded at lower levels, confirming an inverted price curve.
Backwardation typically reflects a strong preference for immediate delivery over future settlement.
Analysts said.
Traders interpreted the pricing structure as a sign of tightening physical supply in the Chinese silver market.
Exchange inventories in China declined to multi-year lows by November, highlighting reduced availability of deliverable metal.
China remains the world’s largest consumer of silver, with industrial demand continuing to outpace domestic supply.
The solar panel sector was cited as a major driver, as silver demand for photovoltaic cells expanded rapidly during 2025.
Expectations have grown that the global silver market could face a fifth consecutive annual supply deficit.
Additional supply pressure emerged from mining disruptions in key producing countries outside China.
Labour disputes and stricter environmental regulations in Peru and Mexico constrained silver output.
These global bottlenecks limited bullion inflows into China and intensified local supply imbalances.Currency dynamics also played a role, as a firmer yuan against the US dollar raised the cost of imports.
Market participants said the exchange rate encouraged holders to retain physical silver rather than sell forward.
Demand from China’s electronics and electric vehicle industries added further strain.
Silver’s high conductivity has made it essential for batteries, wiring and advanced manufacturing components.
Investment demand also increased as both retail and institutional buyers sought hedges against inflation and geopolitical uncertainty.
Tensions affecting global trade routes were cited as an indirect factor influencing commodity flows.
Higher spot prices encouraged market participants to hoard physical metal instead of rolling positions into futures.
Trading volumes on Shanghai exchanges rose sharply amid heightened volatility.
Reports indicated speculators were positioning for potential short squeezes in the tight market.
Silver lease rates climbed to record levels, reflecting the rising cost of borrowing physical metal.
Chinese producers responded by accelerating sales to capitalise on elevated spot prices.
Analysts warned this strategy could relieve short-term pressure but risk future supply gaps.
Industrial users faced rising input costs that could feed through to higher prices for exported goods.
The situation underscored silver’s dual role as both an industrial material and a financial asset
Outside China, the backwardation influenced global pricing, with Comex futures showing sympathetic movements.
Analysts cautioned that ongoing supply deficits could push silver prices significantly higher in 2026.
However, monetary policy decisions and economic growth in the US and Europe may temper momentum.
Traders continued to monitor Shanghai warehouse data as a key indicator of market tightness.
Persistent withdrawals reinforced expectations that supply pressures may extend into the new year.
Analysts said structural demand from green technologies remains a central challenge for global silver supply.