RE: RE: The cash rich mining bargainsSILVER AND THE CHINESE
by David Morgan
Precious Metals Analyst,www.silver-investor.com
January 23, 2009
Bloombergput out some interesting news regarding the silver market stating thatrefined silver output in China has peaked and it could stop growingbecause less will be produced as a result of halting of mineexpansions, higher costs for production and lower prices received forthe metal itself.
Zhou Juqiu, chairman of the gold and silver division at the China Non-ferrous
MetalsIndustry Association, said in an interview. Output may rise to nearly10,000 metric tons this year from 9,092 tons in 2007, he said. Silverprices have more than halved from an 18- year high in March after hedgefunds and speculative investors sold commodities to raise cash, whilerecession fears reduced demand for industrial use of the preciousmetal.
China's annual silver outputgrowth already slowed to 10 percent last year compared with an average30 percent between 2001 and 2006, Zhou said. `There won't be muchgrowth going forward'' in the next few months, Zhou said. Whileproducers are still ``doing ok,'' they are faced with an increasinglydifficult environment, including tighter financing and reduced exportmarket, he said.
In July China revoked theexport rebates on silver to control use of limited natural resources.This will force China to rely on imports to fill the needs for theprecious metal. “China has the world's biggest potential for silver consumption,'' said Li Xiaoni, vice president of China Chamber of Commerce of Metals, Minerals & Chemicals Importers & Exporters.
Thecountry's consumption already accounts for 70 percent of the globaltotal for industrial use, she said. China's consumption of silver hasgrown by over 10 percent recently reaching 4,000 tons last year, Zhousaid. China has 26,000 tons of silver reserves, about 9.6 percent ofthe global total, and the fifth biggest in the world, he said. About 60percent to 70 percent of China's silver is the byproduct of smeltingfor lead, zinc and copper, he said.
Thisbit of news is interesting considering everyone is talking about theentire slowdown throughout the world. Perhaps the Chinese have not yetcaught up with enough silver using I-Pods and Cell phones.
Duringour trip to Europe for the Silver Summit in three main cities London,Paris, and Munich it was relayed to this writer that the silverdelivery times from the LBMA keep getting moved back. In fact it wassuggested that any recognizable problem might actually take place outof London rather than New York.
However,even though the source was top-notch it is still considered a rumor byus and therefore should be considered such by you. However, if weexamine this a bit further we know when there was essentially a defaultin nickel in London some time ago, the Association required those thathad physical to “loan” it back into the market for those that were onthe wrong side of the market.
In themeantime the Comex silver supply has decreased now standing at about123 million ounces. A few months ago it stood much higher and asreported previously and over 10 million ounces have moved intoinvestors hands (Eligible Category) within the Comex holdingfacilities. The dealers are now basically in control of roughly 60million ounces of silver.
I have receivedsome feedback on people that have just given up on the precious metalsstory, and some that trust gold only, or like the metal but wish theynever heard of a mining company.
Intoday’s world black is white and up is down. Very little makes senseand sometimes even when you win you can end up “losing.” This does notmean that you should give up on this area of your portfolio. In ourstudied view nothing will be doing better in the future than theprecious metals and eventually the underlying mining shares (thatsurvive).
In conclusion, 2009 will be a trying year and we see a rally ahead but are approaching it with caution.