SHFE silver backwardation june 6, 2014Silver remains scarce in Shanghai, premiums for spot silver this week have been above 6 percent over the international price and some contracts on the Shanghai Futures Exchange (SHFE) are still trading in backwardation.
On June 6, when the SHFE closed, the bid price for the first delivery month silver contract, which expires on June 16, was ¥ 4058 yuan. The ask price for the December contract was ¥ 4053 yuan.
This means that when you own physical silver, or can get your hands on any, you can sell it in June and at the same time buy it back in December for less money.
Silver delivered in June trades over a premium to silver delivered in December, which emphasizes spot demand.
Normally precious metals trade in contango; future prices being higher than spot.

 


Submitted by Koos Jansen, In Gold We Trust:

Chinese wholesale demand for physical gold, measured by SGE withdrawals, was more or less equal in week 22 (May 26 – 30, 2014) at 35.7 metric tonnes, relative to 36.4 tonnes in week 21. The year to date weekly average is 37.4 tonnes, which is 1908 tonnes annualized.

 

 

Shanghai Gold Exchange withdrawals only 2014 week 22

 

 

Silver remains scarce in Shanghai, premiums for spot silver this week have been above 6 percent over the international price and some contracts on the Shanghai Futures Exchange (SHFE) are still trading in backwardation. On June 6, when the SHFE closed, the bid price for the first delivery month silver contract, which expires on June 16, was ¥ 4058 yuan. The ask price for the December contract was ¥ 4053 yuan. This means that when you own physical silver, or can get your hands on any, you can sell it in June and at the same time buy it back in December for less money. Silver delivered in June trades over a premium to silver delivered in December, which emphasizes spot demand. Normally precious metals trade incontango; future prices being higher than spot.

 

 

SHFE silver backwardation june 6, 2014

The open interest on the SHFE is calculated bilaterally. One contract resembles 15 Kg silver, fineness no less than 99.99%.

 

 

The profit opportunity has attracted supply because the backwardation between the first delivery month and future contracts has decreased since a few weeks.

 

In previous posts I’ve reported the SGE silver premium based on the weekly Chinese SGE reports that always lag one week. Additionally, these reports quote silver premiums by the SGE’s most liquid silver contract Ag(T+D), though this contract is not fully deliverable. That’s why I manually calculated the premium of the spot silver contract Ag99.99 and the spot-deferred contract Ag(T+D) on the SGE over the international price this past week (June 3 – 6, 2014). There was quite a difference in the premiums.

 

Silver premiums Shanghai week 22, 2014

 

 

Spot 9999 silver on the Shanghai White Platinum & Silver Exchange closed at 6.6 % on June 6.

 

This table is a trading overview from the SGE of June 6:

 

SGE trading June 6, 2014

 

 

Let’s examine the data highlighted in red to get a better understanding about trading on the SGE. The spot-deferred contracts (T+D) can be delivered every business day if both longs and shorts agree on delivery. Intensions must be submitted between 15:00-15:30 (GMT+8). If the amount of longs that want to take delivery transcends the amount of shorts that want to make delivery, the “deferred compensation fee” payment direction is short to long. I believe at this moment the daily compensation fee rate for Ag(T+D) is 1.5/10000 (times the amount of Kg’s in the contracts), but the SGE often adjusts the rates. The settlement price of (T+D) contracts is disclosed as the “weighted average price”. On June 6, some Ag(T+D) longs apparently wanted to take delivery, perhaps to sell the silver bars instantly as Ag99.99 to pocket a profit, but the Ag(T+D) shorts refused to deliver any; the “delivery volume” was zero and the payment direction was short to long. By the payment direction we can tell some longs submitted for delivery.

Overview Shanghai Gold Exchange data 2014 week 22

 

- 35. metric tonnes withdrawn in week 22 (26-5-2014/30-5-2014)

- w/w – 1.88 %

- 823 metric tonnes withdrawn year to date.

 

My research indicates that SGE withdrawals equal Chinese wholesale gold demand. For more information read this.

 

 

Shanghai Gold Exchange withdrawals 2014 week 22

 

 

This is a screen shot from the weekly Chinese SGE trade report; the second number from the left (blue –本周交割量) is weekly gold withdrawn from the vaults in Kg, the second number from the right (green – 累计交割量) is the total YTD.

 

 

Schermafbeelding 2014-06-06 om 11.18.39
The Real Asset Co. Buy Gold Online
This chart shows SGE gold premiums based on data from the SGE weekly reports (it’s the difference between the SGE gold price in yuan and the international gold price in yuan).

 

 

SGE premiums

 

 

In Gold We Trust


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  1. Speaking of blinkers,
    Part of the reason Jim Willie gets such short shrift here is because the way he lays out the changing financial landscape leads the investor who chooses to think -rather than just stay stuck in their beliefs – to realize that some  of these changes  do not necessarily bode well for their precious metals holdings.
    In fact, they flash big warning signals! But Jim, like others who depend on a customer base for their daily bread, will not lay out the implications directly. That would make his subscribers angry. Just like it seems to make some folks here angry. I guess that they’d rather just not know – and prefer that nobody else does either! Let’s just not talk about anything that might run counter to our hoped for conclusion, seems to be the message. 
    Push the line that Jim is just another ‘paper-boy;’ shoot the messenger – kill the message! Works every time. Till it doesn’t!
    Goings on in Shanghai are indicative of changes that Jim and Koos can only hint at. The rest is up to those who are serious about protecting their metals investments!

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