Overnight, Peru officially issued an energy crisis emergency decree, adding to the existing supply-side constraints for silver, which already faces structural rigidity. Compounded by the World Silver Institute's forecast of a continued and widening global silver supply deficit for 2026—expected to be 15% larger—the market reignited its upward momentum. In overnight trading, international silver surged over 7%, while Shanghai silver futures rose more than 6%, marking the largest single-day gain for silver since the outbreak of the US-Iran conflict. Additionally, marginal easing in geopolitical tensions and marginally improving macroeconomic expectations are providing further support for silver prices. From a strategy perspective, we recommended buying on dips in our mid-April precious metals weekly report and reiterated this stance in last week's monthly report. Looking ahead, we maintain this buy-on-dips approach but advise implementing robust risk management. Key areas to monitor include energy and mining policies in major silver-producing nations, COMEX inventory levels and delivery ratios, and the gold-to-silver ratio. On the macro front, focus should be on the subsequent process and statements related to the newly nominated Federal Reserve Chair, recent US-Iran developments, the upcoming US presidential visit to China, and the April US CPI and PPI data.
1. Supply Side: Peru's Energy Crisis Decree Further Catalyzes Supply Rigidity Global silver mine production has shown distinct phases over the past 15 years: output grew consistently from 2010 to 2016, reaching a cyclical peak around 2016. Since then, despite rising demand from sectors like new energy and electronics, production has failed to expand correspondingly, remaining stagnant in the 25,000-26,000-tonne range. Easily extractable, high-grade resources are gradually depleting, new project commissioning is limited, growth in global silver reserves is slowing, and issues like insufficient resource reserves and investment continue to constrain supply expansion. Geographically, silver reserves are highly concentrated, with Peru, Australia, Russia, China, and Poland leading the pack; the top five countries collectively account for over 70% of total reserves. Combined with the fact that 72% of silver is produced as a by-product of base metals like copper, lead, and zinc, long-term supply elasticity remains relatively limited. Global silver output has remained in the 25,000-26,000-tonne range for five consecutive years. Factors such as the long mining cycles of primary host metals and declining silver grades mean incremental supply from mining is expected to be nearly stagnant for the coming years. Although higher prices have stimulated recycling, annual growth in recycled silver from 2019-2024 averaged only 3.4%, far from sufficient to offset the decline in mine supply.
On May 12th, Peru formally issued an energy crisis emergency decree, leading to tight domestic power supply and restricted industrial natural gas quotas. According to the latest World Silver Institute data, as the world's second-largest silver producer, most of Peru's silver is a by-product of copper mining. In Peru, silver production grew for a third consecutive year, primarily driven by a 56% year-on-year increase from Glencore's Antamina mine due to higher ore grades. Output from MMG's Las Bambas mine also rose, benefiting from record-high mining and processing volumes and improved recovery rates. Conversely, production from Hochschild's Inmaculada mine fell 12% year-on-year due to lower silver grades. Mining, processing, and smelting operations are highly energy-dependent. Under the dual constraints of energy and electricity, mine operations are limited, and capacity is forced to contract, further intensifying expectations of a supply squeeze and adding to concerns within an already rigid supply environment.
Regarding silver trade, Latin America and Australia supply silver concentrate, while China handles smelting and processing. In 2025, China's imports of silver ore and concentrate reached 1.9167 million tonnes, a significant 14.10% increase from 1.6798 million tonnes the previous year. By source country, Peru, Mexico, and Bolivia remained the top three suppliers, collectively accounting for 74.1% of imports, indicating high concentration. Specifically, imports from Peru increased by 141,000 tonnes to 956,000 tonnes, nearing a 50% share; imports from Mexico rose by 4,000 tonnes to 267,000 tonnes, and imports from Bolivia increased by 23,000 tonnes to 157,000 tonnes. Consequently, expectations of reduced output from Peruvian mines are likely to adversely affect China's import costs for silver ore.
2. Demand Side: Beyond Just Photovoltaics With the structural fragility on the supply side confirmed, a more fundamental supply-demand mismatch is emerging: market understanding of silver demand has severely lagged behind industrial reality. Many still confine silver's industrial applications to photovoltaic silver paste, overlooking its role as a critical, nearly irreplaceable functional material in two potentially more explosive sectors: AI computing infrastructure and new energy vehicles (NEVs) along with their supporting facilities. This cognitive bias stems from silver's financial attributes having long overshadowed its physical properties. Silver possesses the highest electrical conductivity and thermal conductivity among all metals. These extreme physical advantages make it difficult to substitute in high-end precision manufacturing.
In recent years, the global automotive market has accelerated its electrification transition, with electric vehicles rapidly evolving from a niche segment to a mainstream force. EVs require significantly more silver than traditional internal combustion engine (ICE) vehicles, with silver widely used in battery management systems, power electronics, charging infrastructure, electrical contacts, and more. The shift from ICE to EVs is expected to substantially boost silver demand: a pure EV consumes, on average, 67% to 79% more silver than an ICE vehicle, with each EV requiring approximately 25 to 50 grams of silver. The current industry consensus is that the trend of increasing EV market penetration will continue over the long-term forecast period. Global EV production is projected to grow at a compound annual growth rate (CAGR) of 13% between 2025 and 2031. Consequently, the World Silver Institute forecasts that global automotive sector silver demand will grow at a 3.4% CAGR from 2025 to 2031. Regarding charging pile demand, data from China's National Charging Facility Monitoring Service Platform shows that as of the end of March, the total number of EV charging points in China reached 21.481 million, a 46.9% year-on-year increase. This includes 4.863 million public charging points (up 28.1% year-on-year) and 16.618 million private charging points (up 53.5% year-on-year). Global automotive sector (vehicles + charging piles) silver demand is estimated to reach approximately 4,600 tonnes in 2025.
From 2000 to 2025, the total IT power capacity of global data centers grew approximately 53-fold. Even lacking precise silver consumption data, the connection is evident. For instance, AI applications increasingly rely on specialized processors like GPUs, TPUs, and NPUs, all of which depend on high-performance semiconductors that utilize silver in their internal interconnects and packaging. Similarly, many components in the rapidly growing robotics sector also require silver. Currently, governments worldwide are accelerating data center construction and introducing policies to streamline regulation and provide incentives such as grants, tax breaks, and fast-track approvals. The significant capacity expansion of computing infrastructure globally is visible and will ultimately translate into silver demand. The surge in data consumption and the proliferation of AI technology are driving rapid global data center development. The World Silver Institute has compiled global data center stock data, charting the rapid growth trajectory and regional distribution. It is estimated that since 2000, the number of global data centers has grown 11-fold, with the current total exceeding 4,600 worldwide.
Furthermore, the rapid development of 5G communication is injecting new vitality into silver demand. 5G base station construction primarily drives silver demand in high-frequency communication equipment like antennas, filters, and RF components. Each 5G base station uses about 50-200 grams of silver, 2.5 times the amount used in a 4G base station. In 2025, China built over 2 million new 5G base stations, corresponding to a silver demand of 4 million ounces (approx. 124 tonnes). Globally, 5G-related demand reached about 16 million ounces (approx. 497 tonnes), with projections for 2030 reaching 23 million ounces (approx. 715 tonnes). The annual growth rate in silver demand driven by 5G base station construction reaches 40%, fully reflecting the strong momentum in this sector. In summary, we estimate demand from communications, AI data centers, and robotics to reach approximately 3,297 tonnes in 2025.
3. Diminished Impact of Non-Farm Payrolls; Geopolitical Easing Boosts Risk Appetite US non-farm payrolls added 115,000 jobs in April, significantly exceeding market expectations of 65,000 and marking another substantial data beat. Looking back at March's performance, the figure was also revised upward and significantly surpassed market estimates, making it two consecutive months of stronger-than-expected NFP data. However, the overall market reaction from the March data release to the latest April figures has been notably muted. Historically, consistently strong NFP beats tend to dampen rate cut expectations and trigger significant volatility in precious metals, yet this conventional pattern has not materialized recently. The reason is that while NFP has significantly exceeded expectations consecutively, this data series has frequently undergone post-release upward and downward revisions in recent years. After prolonged repeated disturbances, market recognition and trust in the NFP data have noticeably declined. Furthermore, the US labor market has entered a state of low hiring and low layoffs. The more reference-worthy average hourly earnings data has shown clear weakness. The US April average hourly earnings year-on-year came in at 3.6%, significantly below the 3.8% market expectation, with the prior month's figure also revised down to 3.4%. This indicates that against the backdrop of the NFP's diminished reference value, hourly earnings already reflect that US labor inflation is not surging significantly. Market concerns about inflation stemming from the labor side continue to cool, and labor market fluctuations are no longer the primary short-term market focus.
The core trading focus has shifted away from employment data, with all attention concentrated on oil price trends, developments in the Strait of Hormuz situation, and the progress of US-Iran negotiations. Recent notable declines in oil prices will drive down commodity inflation expectations, providing further impetus for Federal Reserve rate cuts. Additionally, the recent visit of Iran's Foreign Minister to China, coupled with the upcoming visit of the US President to China this week, overall releases optimistic signals, providing strong macro support for silver's recent rebound.
4. Outlook: The Trend Remains Intact, Further Upside Anticipated Since the outbreak of the Middle East conflict, geopolitical dynamics have been rapidly changing. The elevated oil price center has fueled inflation concerns, and the Federal Reserve's decision to hold rates steady in April, among other factors, collectively pressured silver prices, leading to over two months of consolidation. Currently, silver volatility has fallen to low levels. Holdings in the SLV Silver Trust have retreated to near the starting point of the November 2025 rally, and CFTC net-long positions are also in a state of low-volatility convergence. These indicators suggest that once macroeconomic expectations show marginal improvement, silver is poised to resume its upward trajectory, given the persistent supply-demand deficit.
From a longer-term perspective, the hard constraint of fundamental supply rigidity for silver is difficult to change. Coupled with demand-side narratives around energy transition and artificial intelligence, which are challenging to disprove or alter in the short term, the structural backdrop remains supportive. Furthermore, World Silver Institute data shows that the global silver market has been in a supply deficit for six consecutive years, with the 2026 deficit projected to be 15% larger than in 2025. This supply-demand gap is expected to persist for an extended period. On the macro front, the Federal Reserve is still expected to implement one rate cut within the year, with the possibility of rate hikes being low and significant balance sheet reduction unlikely. Therefore, macro liquidity is expected to remain relatively ample. Additionally, the intensifying trend of de-dollarization provides a strong long-term tailwind for precious metals. We believe that, in the absence of fundamental changes in the basic or macro landscape, silver retains ample upward momentum over the medium to long term.
Looking ahead, key areas to monitor include energy and mining policies in major silver-producing nations, COMEX inventory levels and delivery ratios, and the gold-to-silver ratio. On the macro front, focus should be on the subsequent process and statements related to the newly nominated Federal Reserve Chair, recent US-Iran developments, the upcoming US presidential visit to China, and the April US CPI and PPI data. From a strategy perspective, the buy-on-dips approach remains recommended, accompanied by prudent risk management.
Comments