Silver prices will rise in the next five years as demand in China expands faster than domestic supply, fuelling imports for use in jewellery, electronics and photography, said GFMS Ltd, a precious metals-research group.

Chinese silver demand will jump to about 2,870 metric tons by 2010, from 1,624 tons last year, according to Tim Spencer, a senior analyst with the London-based group. The increase would make China the third biggest consumer of the metal behind the US and Japan, based on figures for 2004, when it ranked No 5.

"By 2010, we expect China to be using more silver than it mines, which will be positive for silver prices," Spencer said at a presentation in London on September 14. He didn't give a specific price forecast.

China's US$1.65 trillion economy, which expanded 9.5 per cent in the second quarter, is already the world's biggest consumer of commodities such as steel, copper, tin and iron ore. Prices for most of those commodities have reached record levels in recent months as producers fail to keep pace with demand.

Philip Klapwijk, executive chairman of GFMS, said in May it's "quite possible" prices this year will exceed a 16-year high of US$8.50 an ounce, which was reached in April 2004.

GFMS's forecast contrasts with predictions at banks such as JPMorgan Chase & Co and UBS AG.

The metal will average US$6.7 an ounce next year, compared with US$7.1 this year, JPMorgan said in July. UBS AG said in June that silver would average US$5.75 an ounce in 2006.

Both banks said rising US interest rates would curb investor demand for silver and other dollar-denominated commodities as a hedge against weakness in the US currency.

China's 1.3 billion consumers are likely to buy more jewellery as they get richer, said GFMS's Spencer, who is based in Perth, Australia. With silver costing about 63 times less than gold and 127 times less than platinum, younger buyers could well favour the precious metal, he said.

"We expect silver jewellery to gain in popularity, as young people in China decide they want to wear contemporary jewellery but can't afford gold," Spencer said.

The precious metal is also used in consumer products such as electronics and in photographic film, sales of which will expand as China's wealth increases, Spencer said.

Global demand for silver was 26,023 tons last year, with 44 per cent of that coming from industrial applications and the rest from photography and jewellery, GFMS said.

China's stockpiles of the metal have already been hit hard, thereby increasing the likelihood it will have to source its supplies from abroad. Silver inventory in China may be as low as 2,000 tons, or about 7 per cent of global annual supply from mines and scrap, GFMS estimates.

China exported about 10,000 tons of silver between 1998 and 2004, Spencer said.

Stockpiles have now reached a point "where they will not impact on global silver supplies in the future as they did during the past few years," he said. The inventory is "now a spent force."

China mined 3,275 tons of silver last year, or about 12 per cent of global supply.

Chinese mine production and scrap supply will rise only "moderately" in the next several years, Spencer said.

(China Daily September 20, 2005)