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Heraeus Precious Appraisal

  • No. 25 | 08th August 2022

Has China given platinum a heavy-duty hangover?

Silver loadings on smartphones are increasing on average. The number of silver-containing electronic components is growing. Silver is used in electronic connections in devices as its high conductivity is more favourable than other metals, and as electromagnetic shielding. Non-photovoltaic industrial silver demand (which includes electronics) was forecast to grow by 4.6% this year to a record high of approximately 410 moz (source: The Silver Institute), following a rebound from the pandemic to 362 moz in 2020.

However, global smartphone shipments contracted for the fourth consecutive quarter in Q2’22. Shipments fell 9% year-on-year in Q2’22 to 286 million units, 3.5% lower than initial forecasts (source: IDC). Growing evidence of a recession in the US and record European inflation have dampened consumer spending on new handsets and other tech.

China underperformed the global average, posting a 15% decline to 67.2 million handsets versus Q2’21’s figure of 78.7 million, making it the worst quarter since the first wave of Covid. Lockdowns in Q2 severely impacted consumer spending and the consumer confidence index dropped to an all-time low of 86.7 during the period (where 100=1997). The Chinese government has indicated that it will stick to the Zero-Covid policy for the foreseeable future, regardless of potential economic hindrance.

As well as being the largest consumer electronics market, China is the largest industrial user of silver. Just under 25% of global industrial silver demand is attributed to China, of which 75% (~90 moz) is used in the electrical and electronics sector. The July manufacturing PMI for China was 49, indicating a slowdown in industrial output, despite no large lockdowns being implemented. This indicates a wider impediment to output.

A weakening global economy impacts industrial demand for silver and could pull silver prices firmly below $20/oz. Likely economic contractions in the US and Europe in the next 12 months, plus expected further lockdowns in China may continue to constrain smartphone demand and production into H2’22. A US recession along with China’s lockdown impacts are likely to be already priced into the recent silver price declines, but there is more uncertainty about China’s industrial sector’s ability to recover owing to additional sporadic lockdowns and geopolitical tensions with Taiwan.

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