Professional Documents
Culture Documents
Acknowledgement
It would be a great pleasure for me to take this opportunity in thanking everybody who had been of great help in the completion of my summer project. This project has been a p l a t f o r m i n my l e a r n i n g a n d a c q ui r i n g knowledge a b o u t t h e f i n a n c i a l s e c t o r s o a s t o h e l p me i n my f u t u r e endeavors. First & foremost I would like to thank Mr. Hemant Agrawal (Assistant Vice President) for giving me an opportunity to work as a management trainee in Bonanza Portfolio Ltd, Pune. I wo u l d a l s o l i k e t o t h a n k M r . M o h s i n S h a i k h ( S e n i o r R e l a t i o n s h i p M a n a g e r & my P r o je c t He a d ) f o r g i vi n g me g u i d a n c e a n d t r a i n i n g i n u n d e r s t a n d i n g t h e commodity market and helping me to complete my project successfully. I also express my sincere thanks to Prof. Sonali Saripalli, who is my internal guide f o r t h e p r o je c t . He r c o o p e r a t i o n ma d e me wo r th y o f b e i n g a b l e t o p u r s u e s u c h a challenging project and complete it successfully.
Gaurav Patel
Executive summary
India is one of the largest agrarian economies makes it a natural territory for trading in commodities. Agricultures share in Indias GDP stands at 26%, while the commodity sector, including non-agro commodities and bullion-related industries, constitutes about 58% of the countrys GDP. India is essentially a commodity-based economy and the physical commodity market in India is around Rs.11, 00,000 crore. India also happens to be one of the largest importers of gold (80% of demand of 800 tones) and silver (70% of demand of 3800 tones). It is also the largest producer of cotton (15 % of world production). Therefore, it is necessary to study the Indian Commodity Market.
The scope of this study is as follows: Origin of Commodities Market. Meaning of and Objectives of Commodity Futures. Pricing of Commodity Futures. Using commodity futures for Risk Management. Commodity profiles of gold & silver.
INDEX
Introduction Company Profile Objectives Research Methodology Conceptual Background: Literature Review What is commodity market?
o History o Early history of commodity markets
Derivatives
o Indian commodity market structure o Commodities Traded in India o Meaning of Derivatives: o Using commodity futures
Hedging: Speculation: Arbitrage:
How the commodity market works (Working Procedure): Commodity Profile Gold
o o o o o o o
Production Global and domestic demand-supply dynamics Demand Supply Price trends and factors that influence Prices of the Gold History of Derivatives markets in Gold Analysis of Prices of Gold in India in last 5 years Production Demand Supply Factors influencing Prices of the silver Historical background of Silver market Analysis of Prices of Silver in India in last 5 years
Page 4
Silver
o o o o o o
Introduction
Commodities are raw materials used to create various products. Commodities include agricultural products such as grains, oilseeds, vegetable oils, pulses and also meats and livestock; energy products such as crude oil and gasoline; and metals such as gold, silver, aluminum and mild steel ingots. There are many other commodities like polypropylene, sugar, cotton, cocoa and coffee, etc., that are also traded. A commodity is something for which there is demand, but which is supplied without qualitative differentiation across a given market. Characteristic of commodities is that their prices are determined as a function of their market as a whole. Well-established physical commodities are actively traded on various spot and derivative markets. The commodity market has evolved significantly from the days when farmers hauled cartloads of wheat, rice and other produce to the local market. In the 1800s, demand for standardized contracts for trading agricultural products led to the development of commodity futures exchanges. Commodities (commodity) are basic raw materials and foodstuffs such as metals, petroleum, coffee, grain etc. Commodities are traded on a commodity exchange both by the companies that use them (e.g. chocolate manufacturers) and by speculators. Futures contracts allow commodity producers and commodity users to bring some predictability and stability to pricing. By buying futures contracts, they can hedge against underlying price changes in the commodity. Commodity exchange are the exchanges where the trading of futures and forwards take place, basically commodity exchange are trading in future contracts on those commodities which have some regional relevance it is not going to be as easy as a share of a company to get listed in a different exchange. Commodity exchanges in India are expected to contribute significantly in the strengthening Indian economy to face the challenges of globalization. The Commodity Exchange makes commodity money available to all as a medium of exchange, store of wealth and unit of account.
Company Profile
Bonanza mission statement
Our mission is to be a leading, preferred service provider to our customer, and we aim to Achieve this leadership position by building an innovative, enterprising and technology-Driven organization which will set highest standards of service and business ethics. Bonanza is a premier integrated financial services provider, and ranked among the top five in the country in all its business segments, services over 16 million individual investors in various capacities, and provides investor services to over 300 corporate, comprising the who is who of Corporate India. Bonanza covers the entire spectrum of f i n a n c i a l s e r v i c e s s u c h a s S t o c k b r o k i n g , D e p o s i t o r y P a r t i c i p a n t s , D i s t r i b u t i o n o f financial products mutual funds, bonds, fixed deposit, equities, Insurance Broking, Commodities Broking, Personal Finance Advisory Services, M e r c h a n t B a n k i n g & Corporate Finance, placement of equity, IPOs, among others.
brokerage houses in the country. Client -focused philosophy backed by memberships of all principal Indian Stock and Commodity Exchanges makes Bonanza s t a n d a p a r t f r o m i t s c o m p e t i t o r s a n d a p r e f e r r e d s e r v i c e p r o v i d e r i n t h e i n d u s t r y f o r value-based services. To add to our evergrowing achievements, a study by Dun and Bradstreet has rated Bonanza as the SIXTH largest broking house in terms of equity terminal listings in the country. If this is not enough, Bonanza Portfolio Ltd was recently nominated amongst the Top 3 Retail Financial Advisors of the country in an event conducted by CNBC-TV18and OptiMix Financial Advisor Awards 2008. Also Bonanza has been awarded by BSE the Major Volume driver for the year 2004-2005, 2006-2007 and 20082009".
Achievements
1. Top Equity Broking House in terms of branch expansion for 2008*. 2. 3rd in terms of Number of Trading Accounts for 2008*. 3. 6th in terms of trading terminals in for two consecutive years 2007 2008*. 4. 9 t h i n t e r m s o f S u b B r o k e r s f o r 2 0 0 7 * 5. Awarded by BSE 'Major Volume Driver 04 -05, 06-07, 07-08. 6. N o m i n a t e d a m o n g t h e T o p 3 f o r t h e " B e s t F i n a n c i a l A d v i s o r A w a r d s ' 0 8 " i n t h e c a t e g o r y o f National Distributors - Retail instituted by CNBC-TV18 and OptiMix. *As per the survey by DUN & BRADSTREET Corporate tie ups The company has Corporate Tie ups with Birla Sun life, Bajaj Allianz, ICICI Prudential, SBI, Aviva, Kotak Mahindra and Reliance for Life Insurance and General Insurance. In General Insurance, Bonanza provides Insurance for Motor, Health, Travel, Housekeeper, Shopkeeper, Marine, Personal and Group Insurance.
With our online trading account you can buy and sell shares in an instant from any PC with an Internet connection. You will get access to our powerful online trading tools that will help you take complete control over your investment in shares. ACCESSIBILITY Company provides Advice, Education, Tools and Execution services for investors. These services are accessible through our centers across the country (over 250 locations in 123 cities), over the internet as well as over the voice. KNOWLEDGE In a business where the right information at the right time can translate into direct profits, you get access to a wide range of information on our content-rich portal, sharekhan.com. You will also get a useful set of knowledge-based tools that will empower you to take informed decisions. CONVENIENCE You can call our Dial-N-Trade number to get investment advice and execute your transactions. We have a dedicated call-centre to provide this service via a toll free number from anywhere in India. CUSTOMERSERVICE Our customer service team will assist you for any help that you need relating to transactions, billing, Demat and other queries. Our customer s e r v i c e s c a n b e contracted via a toll-free number, email or live chat on sharekhan.com. INVESTMENT ADVICE Company has dedicated research teams for fundamental and technical research. Our analyst constantly track the pulse of the market and provide timely investment advice to you in the form of daily research emails, online chat, printed reports and SMS on your phone. BENEFITS Secure Order by Voice Tool Dial-n-Trade. Automated Portfolio to keep track of the value of your actual purchases. 24x7 Voice Tool access to your trading account. Personalized Price and Account Alerts delivered instantly to your cell phone &email address. Special Personal Inbox for order and trade confirmations. On-line customer service via web chat. Anytime Ordering
Objectives
To study the Indian Commodity Market. To study and analyze the gold and silver commodity in India. To know the nature of Clients of Bonanza Portfolio Ltd. To generate the awareness of trading in gold and silver among the Clients of Bonanza Portfolio Ltd.
Research Methodology
Basically, there are two tools of data collection namely: Primary Data Secondary Data
Primary Data: Primary data is the original information gathered for a specific purpose. It is usually collected by coming in direct contact with people. It is the raw data. The Most important source of primary data is Telephonic Study and Questionnaire.
Secondary data: Secondary data is the information which already exists having been collected for some purpose. The information is already formatted. Various sources of secondary data are INTERNET, MAGAZINES, PAST RECORDS, REFERNCE BOOKS etc. For this project websites of broking firm were referred.
Collection of Data: For this research secondary data is used such as websites, discussions with seniors, obtaining information from senior authorities and also make a use of same financial reference book.
Literature Review
While doing this project I studied the previous researches which helped me to get a broader prospective for my project. I also referred various books and journals to have a better understanding about the topic of my project. For the better understanding the commodity market I referred books on commodity market and extracted the desired contents. With the help of moneycontrol.com and commodityonline.com I gathered the required data. I also made use of questionnaire method of research for my project work and acquired the complete information for my project.
History
The modern commodity markets have their roots in the trading of agricultural products. While wheat and corn, cattle and pigs, were widely traded using standard instruments in the 19th century in the United States, other basic foodstuffs such as soybeans were only added quite recently in most markets. For a commodity market to be established there must be very broad consensus on the variations in the product that make it acceptable for one purpose or another. The economic impact of the development of commodity markets is hard to overestimate. Through the 19th century "the exchanges became effective spokesmen for, and innovators of, improvements in transportation, warehousing, and financing, which paved the way to expanded interstate and international trade."
details, it was only possible to verify the number of tokens inside by shaking the vessel or by breaking it, at which point the number or terms written on the outside became subject to doubt. Eventually the tokens disappeared, but the contracts remained on flat tablets. This represented the first system of commodity accounting. Classical civilizations built complex global markets trading gold or silver for spices, cloth, wood and weapons, most of which had standards of quality and timeliness. Considering the many hazards of climate, piracy, theft and abuse of military fiat by rulers of kingdoms along the trade routes, it was a major focus of these civilizations to keep markets open and trading in these scarce commodities. Reputation and clearing became central concerns, and the states which could handle them most effectively became very powerful empires, trusted by many peoples to manage and mediate trade and commerce.
speculation and were detrimental to the healthy functioning of the market for the underlying commodities, resulting in to banning of commodity options trading and cash settlement of commodities futures after independence in 1952. The parliament passed the Forward Contracts (Regulation) Act, 1952, which regulated contracts in Commodities all over the India. The act prohibited options trading in Goods along with cash settlement of forward trades, rendering a crushing blow to the commodity derivatives market. Under the act only those associations/exchanges, which are granted reorganization from the Government, are allowed to organize forward trading in regulated commodities. The act envisages three tire regulations: (i) (ii) (iii) Exchange which organizes forward trading in commodities can regulate trading on day-to-day basis; Forward Markets Commission provides regulatory oversight under the powers delegated to it by the central Government. The Central Government- Department of Consumer Affairs, Ministry of Consumer Affairs, Food and Public Distribution- is the ultimate regulatory authority
After Liberalization and Globalization in 1990, the Government set up a committee (1993) to examine the role of futures trading. The Committee (headed by Prof. K.N. Kabra) recommended allowing futures trading in 17 commodity groups. It also recommended strengthening Forward Markets Commission. Forward Contracts (Regulation) Act 1952, particularly allowing option trading in goods and registration of brokers with Forward Markets Commission. The Government accepted most of these recommendations and futures trading was permitted in all recommended commodities. It is timely decision since internationally the commodity cycle is on upswing and the next decade being touched as the decade of Commodities. Commodity exchange in India plays an important role where the prices of any commodity are not fixed, in an organized way.
allowed for derivatives trading as well as the value of futures trading in commodities, which crossed $ 1 trillion mark in 2006. In India there are 25 recognized future exchanges, of which there are four national level multicommodity exchanges. After a gap of almost three decades, Government of India has allowed forward transactions in commodities through Online Commodity Exchanges, a modification of traditional business known as Adhat and Vayda Vyapar to facilitate better risk coverage and delivery of commodities. The four exchanges are: (i) (ii) (iii) (iv) National Commodity & Derivatives Exchange Limited, Mumbai Multi Commodity Exchange of India Limited, Mumbai. National Multi- Commodity Exchange of India Limited, Ahmadabad. Indian Commodity Exchange Limited, Gurgaon.
Derivatives
Another major leap in the development of commodities markets is the growth in commodities derivative segment. Derivatives trading have a long history. The first recorded incident of commodities trade was traced back to the times of ancient Greece. In the year 1688 De la Vega reported the trading in 'time bargains' which were the then commonly used terms for options and futures. Though the first recorded futures trade was found to have happened in Japan during the 17th century, evidences reveal that the trading in rice futures was existent in China, 6000 years ago. Derivatives are useful for both the producers and the traders for the mitigation of risk in their business. Trading in futures is an outcome of the mankind's efforts towards maintaining the supply balance of seasonal commodities throughout the year. Farmers derived the real benefits of derivatives contracts by assuring the prices they want to procure on their products. The volatility of prices has made the commodity derivatives not only significant risk hedging instruments but also strategic exchange traded assets. Slowly, traders and speculators, who never intended to take the delivery of goods, entered this segment. They traded in these instruments and made their margins by taking the advantage of price volatility in commodity markets. The dawn of the 21st century brought back the good times for commodity markets. With the end of a 20 year bear market for commodities, following the global economic recovery and increased demand from China and other developing nations, has revitalized t h e charisma of commodities markets. According to the forecasts given b y e x p e r t s commodities markets are likely to experience a bright future with the depreciation in the value of financial assets. Furthermore, increasing global consumption, declining U.S.Dollar value, rising factor -input costs and the recent recovery of the market from the clutches of bear trend are considered to be the positive symptoms, which contribute to the acceleration of growth in commodity markets segment.
Meaning of Derivatives:
A derivative is a product whose value is derived from the value of one or more underlying variables or assets in a contractual manner. The underlying asset can be equity, forex, commodity or any other asset. In other words, Derivative means having no independent value. i.e. the value is derived from the value of the underlying asset. Derivative means a forward, future, option or any other hybrid contract of predetermine fi xed duration, linked for the purpose of c o n t r a c t f u l f i l l m e n t t o t h e v a l u e o f a s p e c i f i e d r e a l o f f i n a n c i a l a s s e t o r t o a n i n d e x securities. Thus, a derivative contract is an enforceable agreement whose value is derived from the value of an underlying asset. The four most common examples of derivative instruments are forwards, futures, options and swaps / spreads.
Speculation:
An entity having an opinion on the price movements of a given commodity can speculate using the commodity market. While the basics of speculation apply to any market, speculating in commodities is not as simple as speculating on stocks in the financial market. For a speculator who thinks the shares of a given company will rise, it is easy to buy the shares and hold them for whatever duration he wants to. However, commodities are bulky products and come with all the costs and procedures of handling these products. The commodities futures markets provide speculators with an easy mechanism to speculate on the price of underlying commodities. To trade commodity futures on the NCDEX, a customer must open a futures trading account with a commodity derivatives broker. Buying futures simply involves putting in the margin money. This enables futures traders to take a position in the underlying commodity without having to actually hold that commodity. With the purchase of futures contract on a commodity, the holder essentially makes a legally binding promise or obligation to buy the underlying security at some point in the future (the expiration date of the contract).
Arbitrage:
A central idea in modern economics is the law of one price. This states that in a competitive market, if two assets are equivalent from the point of view of risk and return, they should sell at the same price. If the price of the same asset is different in two markets, there will be operators who will buy in the market where the asset sells cheap and sell in the market where it is costly. This activity termed as arbitrage, involves the simultaneous purchase and sale of the same or essentially similar security in two different markets for advantageously different prices. The buying cheap and selling expensive
Commodity Market: With Special Reference to Gold & Silver Page 18
continues till prices in the two markets reach equilibrium. Hence, arbitrage helps to equalize prices and restore market efficiency.
Commodity Profile
Commodity Market: With Special Reference to Gold & Silver Page 19
Gold
For centuries, gold has meant wealth, prestige, and power, and its rarity and natural beauty have made it precious to men and women alike. Owning gold has long been a safeguard against disaster. Many times when paper money has failed, men have turned to gold as the one true source of monetary wealth. Today is no different. While there have been fluctuations in every market and decided downturns in some, the expectation are that gold will hold its own. There is a limited amount of gold in the world, so investing in gold is still a good way to plan for the future. Gold is homogeneous, indestructible and fungible. These attributes set gold apart from other commodities and financial assets and tend to make its returns insensitive to business cycle fluctuations. Gold is still bought (and sold) by different people for a wide variety of reasons - as a use in jewellery, for industrial applications, as an investment and so on.
Country-wise share in Gold Production, 1968 and 1999. Country South Africa Australia Canada USA China Indonesia India Rest of the world Total Tonnes, 1968 972 87 44 Share 1968 67 6 3 Tonnes, 1999 437 309 154 334 154 154 51 463 2571 Share, 1999 17 12 6 13 6 6 2 18 100
87 1450
6 100
Production
Traditionally South Africa has been the largest producers of gold in the world accounting for almost 80% of all non-communist output in 1970. Although it retained its position as the single largest gold producing country, its share had fallen to around 17% by 1999 because of high costs of mining and reduced resources. Table 4.1 gives the country-wise share in gold production. In contrast other countries like US, Australia, Canada and China have increased their output exponentially with output from developing countries like Peru and other Latin American countries also increasing impressively. Mining and production of gold in India is negligible, now placed around 2 tonnes (mainly from the Kolar gold mines in Karnataka) as against a total world production of about 2,272 tonnes in 1995.
Global and domestic demand-supply dynamics The demand for gold may be categorized under two heads - consumption demand and investment demand. Consumption of gold differs according to type, namely industrial applications and jewellery. The special feature of gold used in industrial and dental applications is that some of it cannot be salvaged and thus is truly consumed. This is unlike consumption in the form of jewellery, which remains as stock and can reappear at future time in market in another form. Consumer demand accounts for almost 90% of total gold demand and the demand for jewelry forms 89% of consumer demand. In markets with poorly developed financial systems, inaccessible or insecure banks, or where trust in the government is low, gold is attractive as a store of value. If gold is held primarily as an investment asset, it does not need to be held in physical form. The investor could hold gold-linked paper assets or could lend out the physical gold on the market attaining a higher return in addition to savings on the storage costs. Japan has the highest investment demand for gold followed closely by India. These two countries together account for over 50% of total world demand of gold for retail investment. Investment demand can be split broadly into two, private and public sector holdings. There are several ways in which investors can invest in gold either directly or through a variety of investment products, each of which lends it to specific investor preferences: Coins and small bars Gold accounts: allocated and unallocated Gold certificates and pool accounts Gold Accumulation Plan Gold backed bonds and structured notes Gold futures and options Gold-oriented funds
Demand
The Consumer demand for gold is more than 3400 tonnes per year making it whopping $40 billion worth. More than 80% of the gold consumed is in the form of jewellery, which is generally pre-dominated by women. The Indian demand to the tune of 800 tonnes per year is making it the largest market for gold followed by USA, Middle East and China. About 80% of the Physical gold is consumed in the form of jewellery while bars and coins occupy not higher than 10% of the gold consumed. If we include jewellery ownership, then India is the largest repository of gold in terms of total gold within the national boundaries. Regarding pattern of demand, there are no authentic estimates, the available evidence shows that about 80% is for jewellery fabrication for domestic demand, and 15% is for investor-demand (which is relatively elastic to gold-prices, real estate prices,
Commodity Market: With Special Reference to Gold & Silver Page 21
financial markets, tax-policies, etc.). Barely 5% is for industrial uses. The demand for gold jewellery is rooted in societal preference for a variety of reasons - religious, ritualistic, a preferred form of wealth for women, and as a hedge against inflation. It will be difficult to prioritize them but it may be reasonable to conclude that it is a combined effect, and to treat any major part as exclusively a store of value or hedging instrument would be unrealistic. It would not be realistic to assume that it is only the affluent that creates demand for gold. There is reason to believe that a part of investment demand for gold assets is out of black money. Rural India continues to absorb more than 70% of the gold consumed in India and it has its own role to fuel the barter economy of the agriculture community. The yellow metal used to play an important role in marriage and religious festivals in India. In the Hindu, Jain and Sikh community, where women did not inherit landed property whereas gold and silver jewellery was, and still is, a major component of the gifts given to a woman at the time of marriage. The changeover hands of gold at the time of marriage are from few grams to kgs. The gold also occupies a significant position in the temple system where gold is used to prepare idol and devotees offer gold in the temple. These temples are run in trust and gold with the trust rarely comes into re-circulation. The existing social and cultural system continues to cause net gold buyer market and the government policies have to take note of the root cause of gold demand, which lies in the social and cultural system of India. The annual consumption of gold, which was estimated at 65 tonnes in 1982, has increased to more than 700 tonnes in late 90s. Although it is likely that, with prosperity and enlightenment, there may be deceleration in demand, particularly in urban areas, it would be made good by growing demand on account of prosperity in rural areas. In the near future, therefore, the annual demand will continue to be over 600 tonnes per year.
Supply
Indian gold holding, which are predominantly private, is estimated to be in the range of 10000-13000 tonnes. One fourth of world gold production is consumed in India and more than 60% of Indian consumption is met through imports. The domestic production of the gold is very limited which is around 9 tonnes in 2002 resulting in more dependence on imported gold. The availability of recycled gold is price sensitive and as such the dominance of the gold supply through import is in existence. The fabricated old gold scraps is price elastic and was estimated to be near 450 tonnes in 2002. It rose almost more than 40% compared to the previous year because of rise in gold price by more than 15%. The demand-supply for gold in India can be summed up thus:
1. Demand for gold has an autonomous character. Supply follows demand. 2. Demand exhibits income elasticity, particularly in the rural and semi-urban areas. 3. Price differential creates import demand, particularly illegal import prior to the
Commodity Market: With Special Reference to Gold & Silver Page 22
Mumbai's first multi-commodity exchange, the National Commodities and Derivatives Exchange, NCDEX launched in 2003 by a consortium of ICICI Bank Limited, Life Insurance Corporation, National Bank for Agriculture and Rural Development and National Stock Exchange of India Limited, introduces gold futures contracts. Gold has a very active derivative market compared with other commodities. Gold accounts for 45 per cent of the worlds commercial banks commodity derivatives portfolio.
Silver
The dictionary describes it as a white metallic element, sonorous, ductile, very malleable and capable of high degree of polish. It also has the highest thermal and electrical conductivity of any substance. Silver is somewhat harder than gold and is second only to gold in malleability and ductility. Silver remains one of the most prominent candidates in the metals complex as far as futures' trading is concerned. Thanks to its unique volatility, silver has remained a hot favorite speculative vehicle for the small time traders. Though futures trading were banned in India since late sixties, parallel futures markets are still very active in Delhi and Indore. Speculative interest in the white metal is so intense that it is believed that combined volume of Indian punters represent almost 40 percent of volume traded at New York Commodity Exchange. Delhi, Rajasthan, MP and UP are the active pockets for the silver futures. Until recently, Rajkot and Mathura were conducting futures but now players have diverted toward comex trade. Most of the world's silver is mined in the US, Australia, Mexico, Peru, and Canada. Cash markets remain highly unorganized in the silver and impurity and excessive speculation remain key issue for the trade. Taking cue from gold, government of India is planning to introduce hallmarking in silver which is likely to address quality and credibility of Indian silverware and jeweler industry. The unique properties of silver restrict its substitution in most applications.
Production
Silver ore is most often found in combination with other elements, and silver has been mined and treasured longer than any of the other precious metals. Mexico is the worlds leading producer of silver, followed by Peru, Canada, the United States, and Australia. The main consumer countries for silver are the United States, which is the worlds largest consumer of silver, followed by Canada, Mexico, the United Kingdom, France, Germany, Italy, Japan and India. The main factors affecting these countries demand for silver are macro economic factors such as GDP growth, industrial production, income levels, and a whole host of other financial macro-economic indicators.
Demand
Demand for silver is built on three main pillars; industrial and decorative uses, photography and jewelry & silverware. Together, these three categories represent more than 95 percent of annual silver consumption. In recent years, the main world demand for silver is no longer monetary, but industrial. With the growing use of silver in
Commodity Market: With Special Reference to Gold & Silver Page 25
photography and electronics, industrial demand for silver accounts for roughly 85% of the total demand for silver. Jewelry and silverware is the second largest component, with more demand from the flatware industry than from the jewelry industry in recent years. India, the largest consumer of silver, is gearing up to start hallmarking of the white precious metal by April. India annually consumes around 4,000 tonnes of silver, with the rural areas accounting for the bulk of the sales. India's demand for silver increased by 177 per cent over the past 10 years as compared to 517 tonnes in 1991. According to GFMS, India has emerged as the third largest industrial user of silver in the world after the US and Japan.
Supply
The supply of silver is based on two facts, mine production and recycled silver scraps. Mine production is surprisingly the largest component of silver supply. It normally accounts for a little less than 2/3 rd of the total (last year was slightly higher at 68%). Fifteen countries produce roughly 94 percent of the worlds silver from mines. The most notable producers are Mexico, Peru, the United States, Canada and Australia. Mexico, the largest producer of silver from mines. Peru is the worlds second largest producer of silver. Silver is often mined as a byproduct of other base metal operations, which accounts for roughly four-fifths of the mined silver supply produced annually. Known reserves, or actual mine capacity, is evenly split along the lines of production. The mine production is not the sole source - others being scrap, disinvestments, government sales and producers hedging. Scrap is the silver that returns to the market when recovered from existing manufactured goods or waste. Old scrap normally makes up around a fifth of supply. Scrap supply increased marginally last year up by 1.2%. The other major source of silver is from refining, or scraps recycling. Because silver is used in the photography industry, as well as by the chemical industry, the silver used in solvents and the like can be removed from the waste and recycled. The United States recycles the most silver in the world, accounting for roughly 43.6 million ounces. Japan is the second largest producer of silver from scrap and recycling, accounting for roughly 27.8 million troy ounces in 1997. In the United States and Japan, three-quarters of all the recycled silver comes from the photographic scrap, mainly in the form of spent fixer solutions and old X-ray films.
changes in factors such as inflation (real or perceived), changing values of paper currencies, and fluctuations in deficits and interest rates, etc. Although prices and incomes are important factors, they are also influenced by factors such as tastes, technological change and market liberalization. Approximately 70 percent of the silver mined in the western hemisphere is mined as a byproduct of other metal products, such as gold, copper, nickel, lead, and zinc. As such, the price of these metals greatly affects the supply of silver mined in any year. As die price of die omer metal products increases, die increased profit margin to mine operations stimulate greater production of die omer metals, and as a result, die production of silver increases in tandem. Because silver is a precious metal, its price is determined by die supply and demand ratio at any given moment. As is the case with other precious metals, there is a limited amount of silver in the world. It is not a product mat can be manufactured en masse, and, mere fore is subject to issues such as weamer and politics mat may affect silver mining operations.
YEAR