Shanghai Silver Surges on Industrial Demand, Trading at $78.55 Per Ounce Premium

Silver Prices Surge in Shanghai Amid Backwardation Signaling Tight Supply in China

Silver prices in Shanghai surged sharply on Dec. 24, 2025, with spot silver on the Shanghai Gold Exchange trading at a notable premium over futures contracts, signaling a market in tight backwardation. The Ag(T+D) spot contract settled at approximately 19,400 Chinese yuan per kilogram, or $78.55 per ounce, significantly above the global benchmark on the Comex, which closed at $72.36 per troy ounce according to market data. The inversion in pricing reflects strong near-term physical demand in China outpacing available supply.

Industrial sectors in China, particularly the solar panel and electronics industries, have driven demand for silver, a critical input for photovoltaic cells and advanced electronics. This surge is further fueled by the country's growing electric vehicle and battery manufacturing sectors, which require large quantities of the metal. At the same time, global silver supply has remained constrained due to production slowdowns in major mining regions like Peru and Mexico.

The backwardation situation is a clear indicator that traders and industrial users in China prefer to hold physical silver rather than futures contracts. This preference highlights a near-term scarcity that has pushed spot prices higher than future delivery prices. The situation has also led to rising silver lease rates and increased trading volumes on Shanghai exchanges as speculators and investors react to market dynamics.

Why the Standoff Happened

China's silver backwardation is rooted in several key factors, including multi-year lows in silver inventories and a surge in industrial consumption. By November 2025, silver stockpiles on Chinese exchanges had fallen to their lowest levels in years, driven by robust demand from domestic manufacturing and export sectors. The solar panel industry, in particular, has seen explosive growth, consuming significant quantities of silver for photovoltaic cell production.

Global supply constraints have also played a role. Labor disputes and environmental regulations in key silver-producing countries like Peru and Mexico have limited output. These production bottlenecks have reduced the flow of silver into China, intensifying the supply-demand imbalance. Additionally, a stronger yuan has increased the cost of importing silver, making domestic hoarding more attractive.

How Markets Reacted

The backwardation in China's silver market has caused sharp price swings and increased volatility in Shanghai silver trading. Silver lease rates have spiked, indicating a tight lending pool for physical metal. Chinese producers have responded by accelerating spot sales to capitalize on high prices, a strategy that may help ease immediate pressures but could lead to future supply shortages if mining investment does not keep pace according to market analysis.

Industrial users, particularly those in solar and electronics, are now facing higher input costs. These cost increases could translate into higher prices for solar panels, consumer electronics, and related exports, impacting China's broader trade competitiveness. Meanwhile, investment demand for silver has also risen, with both retail and institutional buyers treating the metal as a hedge against inflation and geopolitical risks.

The situation has also spilled into global markets, with Comex silver futures showing some sympathetic price movements. While Western markets have not experienced as sharp an inversion, analysts warn that ongoing supply deficits could push silver prices to triple digits in 2026 if production does not recover. Traders are closely monitoring inventory data and warehouse withdrawals, with Shanghai levels serving as a key indicator of market tightness.

What Analysts Are Watching

Market analysts are keeping a close eye on several key variables as the backwardation plays out. The pace of inventory draws from Shanghai warehouses will be a critical indicator of how long the current supply imbalance persists. If withdrawals continue, it could signal a prolonged period of backwardation, pushing prices even higher.

Another point of focus is the potential for policy shifts or new production gains that might alleviate the supply crunch. Analysts also expect to see more activity in silver recycling and alternative sourcing, as companies seek to offset shrinking mine output. The broader global economic outlook, particularly in the U.S. and Europe, will also influence how quickly prices respond to these pressures, with Federal Reserve rate decisions and growth trends serving as key variables.

For now, the Shanghai premium over Comex has remained firm, suggesting that physical imbalances are likely to persist into 2026 unless new supply or policy interventions emerge. As the world's largest silver consumer continues to outpace production, the market remains in a state of flux, with investors and producers alike navigating a complex and rapidly shifting landscape.