China's latest move to impose export restrictions on silver is shaking the global precious metals market.

The global silver market is entering a new phase of tension as China – the world's largest silver refining powerhouse – officially implements strict export controls starting January 1, 2026. According to international analysts, this move will not only alter the market structure but also put silver prices in an unprecedentedly "sensitive" position to supply and demand shocks.

Risk of market fragmentation and extreme price volatility.

According to new regulations effective from the beginning of this year, China's Ministry of Commerce has announced a list of 44 enterprises licensed to export silver during the 2026-2027 period. Although the Chinese government has not issued a complete export ban, this policy requires official approval for silver shipments abroad.

Observers believe that this regulation has officially elevated silver from a common commodity to a "strategic asset," placing the mechanism for managing silver exports on par with rare earth metals – crucial materials for the defense and high-tech industries, in which China dominates the global supply.

Goldman Sachs, an investment bank, warns that this shift risks "fragmenting" the global silver market. Experts explain that the risk of supply disruptions will force market participants to prioritize stockpiling their own reserves, rather than trusting and sharing supply within a common global system as before. The shift from a pooled system to isolated regional reserves will create an inefficient structure, reducing liquidity and making the market vulnerable to localized price fluctuations.

Goldman Sachs analysts Lina Thomas and Daan Struyven stated in a recent report that extreme silver price volatility is likely to continue into 2026. The primary cause is not entirely a global shortage, but rather local supply bottlenecks and low inventory levels at major trading centers.

Specifically, silver inventories in London – the global price benchmark – are unusually low after much of the metal was moved to storage facilities in the US last year due to concerns about tariffs. This scarcity has created conditions for price surges, where prices accelerate sharply as investor cash absorbs the remaining metal.

Under normal conditions, net demand of 1,000 tonnes per week would push silver prices up by about 2%. However, in the current environment of low inventories, Goldman Sachs estimates price sensitivity has surged to around 7%. Experts warn that these extreme price fluctuations will occur in both upward and downward directions.

The challenging problem of supply

Many analysts believe China is employing a strategy of "weaponizing" its silver supply, similar to how it previously handled rare earth elements. New regulations require exporting companies to have an annual production capacity of 80 tons and a credit limit exceeding $30 million. This will exclude hundreds of small and medium-sized exporters from the system, even though they are crucial suppliers to industrial manufacturers worldwide.

Charlie Garcia, founder of the R360 club for the ultra-rich, commented on MarketWatch that China is not banning exports entirely, but rather the licensing requirements, quotas, and paperwork will gradually tighten the supply. He recalled the lesson learned when the West suffered due to China's tightening of rare earth exports in 2010, causing prices to skyrocket by 4,500%.

In fact, China holds the position of "gatekeeper" for refined silver supply. Despite being the second-largest silver miner, it controls 60-70% of the world's refined silver supply. The London Silver Market Association (LBMA) reports that China possesses 27 accredited refineries, far surpassing the second-ranked country, Japan, with only 13.

Meanwhile, the supply of silver from mining operations worldwide is struggling and unable to increase quickly enough to meet demand. Global mining output has stalled since its 2016 peak. Even in the US, while mining output is expected to increase slightly in 2024, it has remained relatively flat in recent years.

A major hurdle is the dependence on the supply of silver. More than half of the world's silver is mined as a byproduct of copper, lead, and zinc mines. Therefore, production plans depend on the market for those base metals, not the price of silver. Even if silver prices rise, these mines are unlikely to increase production immediately.

On the demand side, silver demand has exceeded supply for four consecutive years. The Silver Institute forecasts this year will be the fifth consecutive year of market deficit. Last year's shortfall amounted to nearly 149 million ounces, pushing the total deficit over the past four years to 678 million ounces – equivalent to 10 months of 2024's mining supply.

Demand from the solar energy and defense industries is growing. Although copper can replace silver in solar cells, this technological transition will take at least four years to implement on a large scale. Billionaire Elon Musk, CEO of Tesla, recently expressed concerns on social media about the control policies regarding silver, as it is essential for many industrial processes.

Thus, in the context of complex geopolitical conditions and tight supply, silver is no longer simply a commodity, but has become a strategic asset in the global resource war.

Source: Tin Tuc News

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