Shanghai Silver Surpasses Futures, Spur Record Lease Rates as Demand Outpaces Supply

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

Silver prices in Shanghai have seen a dramatic rise as the market entered a period of backwardation, where spot prices surpassed futures contracts. This unusual pricing structure signals a tight physical market in China and reflects growing demand for the metal. On Dec. 24, 2025, the Ag(T+D) spot contract on the Shanghai Gold Exchange closed near 19,400 Chinese yuan per kilogram, equivalent to about $78.55 per ounce. This marked a significant premium over global prices, particularly on the Comex, where silver futures ended the day at $72.36 per troy ounce.

The backwardation in China's silver market has intensified due to dwindling silver stockpiles and strong industrial demand. By November 2025, exchange inventories had dropped to multi-year lows, unable to keep pace with the rapid growth in sectors like solar panels and electronics. This imbalance has led traders to prefer holding physical silver over long-term futures contracts, a clear sign of near-term scarcity.

The inverted pricing curve has not only highlighted supply constraints but also spurred activity in the market. Silver lease rates have surged to record levels, showing the scarcity of available metal for lending. Producers and investors have responded by accelerating sales to capitalize on elevated spot prices, a move that may alleviate immediate pressure but could lead to future supply gaps if production does not keep up with demand.

Why the Standoff Happened

China's silver backwardation is driven by a combination of factors, including industrial demand and global supply constraints. The solar panel industry, which uses silver in photovoltaic cells, has experienced rapid growth in 2025, contributing to increased demand. Additionally, supply disruptions in major mining regions such as Peru and Mexico have reduced the flow of silver into China, exacerbating the shortage.

Global supply chain bottlenecks have further restricted the availability of silver in China. Labor disputes and environmental regulations in key mining regions have limited production, reducing the amount of silver that can be imported. These constraints have been compounded by rising import costs due to a stronger yuan, which has encouraged holders to retain physical silver rather than sell it to international markets.

China's dominance as the world's largest consumer of silver has amplified these pressures. With domestic demand outpacing both local production and imports, the market has seen a sharp inversion in pricing. This dynamic is similar to historical instances of market tightness, such as the Hunt brothers' attempt to corner the silver market in the 1970s, though the current situation is driven more by structural demand than speculative activity.

How Markets Reacted

The backwardation in China's silver market has had ripple effects across the broader commodity landscape. Trading volumes on the Shanghai Gold Exchange have surged as speculators and investors look to capitalize on the price inversion. The increased activity has led to greater day-to-day price volatility, as traders react to shifting supply and demand conditions.

Silver lease rates have reached record highs, reflecting the scarcity of available metal for lending. This has made it more expensive for industrial users to access silver on a short-term basis, further tightening the market. Producers have responded by accelerating sales of physical silver, hoping to benefit from the elevated spot prices before they potentially correct.

The situation has also impacted China's export industries, as higher input costs for silver have filtered through to end products such as solar panels and electronics. This cost pressure may eventually affect global markets, as China's exports of these goods face potential price increases. The broader implication is that silver's role as both an industrial input and a financial asset is being tested, with the physical market gaining more influence over pricing.

What Analysts Are Watching

Analysts are closely monitoring several key indicators to gauge the future trajectory of China's silver market. Inventory levels in Shanghai warehouses are seen as a critical pulse check on market tightness. Continued withdrawals from these stocks would reinforce the backwardated curve and suggest that the imbalance could persist into 2026.

Investors are also watching for signs of policy shifts that could ease supply constraints. Any increase in domestic mining investment or new import policies could help alleviate the current shortage. However, structural demand from green technologies, such as solar and electric vehicles, is expected to continue outpacing mine supply growth, making a resolution less likely in the short term.

The global implications of China's backwardation are also under scrutiny. While Comex futures have shown some movement in response to the situation, Western markets remain less inverted compared to China's. Analysts warn that ongoing deficits could push silver toward triple-digit prices if supply fails to recover in 2026. This would depend on factors such as Federal Reserve rate decisions and economic momentum in regions like the U.S. and Europe, which could temper the pace of price increases.

As the year draws to a close, the premium of Shanghai silver over Comex has remained firm, signaling that physical imbalances are likely to extend into the new year unless policy changes or production gains intervene. The situation highlights a deeper structural challenge in the global silver market, where demand from emerging technologies is rapidly outpacing traditional supply chains.