Silver’s Rebalancing Act: London Outflows, Shanghai Rebuild, and Premiums Holding Near 14%
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Silver markets are currently transitioning from a phase of acute physical tightness into one of partial rebalancing, with inventory flows and pricing signals diverging across regions. In London, ETF holdings declined by approximately 5.4 million ounces (168 metric tons) over the week, while in China, inventories have been rebuilding rapidly after earlier depletion. Despite this influx of metal into Shanghai vaults, regional premiums remain elevated, approaching 14% above LBMA benchmarks.
On the Shanghai Futures Exchange (SHFE), inventories have increased sharply, reaching approximately 689.5 tons (22.2 million ounces) after a weekly inflow of 124.7 tons. This follows a broader accumulation of over 327 tons within five weeks, including a 16-day streak of continuous inflows. Combined inventories across SHFE and the Shanghai Gold Exchange (SGE) have reached levels between 1,062 and 1,092 tons (approximately 34–35 million ounces), marking a three-month high.
At the same time, pricing dynamics have shifted. The SGE spot price has flipped into backwardation relative to SHFE futures, trading at a premium of CNY 39/kg (approximately $0.16/oz). Meanwhile, silver in China continues to trade around $84–$85 per ounce versus $74–$75 per ounce in London, representing a premium of approximately $10–$10.35 per ounce, or roughly 13–14%.
These figures describe a market where physical supply is being replenished in China after a period of extreme depletion, while regional demand continues to sustain elevated pricing.
London silver ETF holdings recorded a weekly outflow of approximately 5.4 million ounces, equivalent to 168 tons. This reduction reflects a decline in custodial holdings rather than a change in total global supply.
ETF outflows typically release physical metal back into the broader vault system, making it available for delivery or redistribution. The decline in London ETF holdings therefore contributes to the availability of physical silver outside of ETF structures, even as regional demand patterns determine where that metal ultimately flows.
Following a period of historically low inventory levels earlier in the year, Shanghai vault stocks have increased significantly. SHFE inventories alone have risen to approximately 689.5 tons after a weekly increase of 124.7 tons, representing a 22% gain.
This increase is part of a broader accumulation trend, with over 327 tons added within five weeks and a 16-day streak of consecutive inflows. Earlier readings also showed inventories at 644 tons and 615 tons during the buildup phase, confirming a steady upward trajectory.
Combined inventories across SHFE and SGE have reached between 1,062 and 1,092 tons, or approximately 34 to 35 million ounces, marking the highest levels recorded in roughly three months.
Despite this increase, current inventory levels remain approximately 77% below the peak levels recorded in 2021, indicating that the system has not returned to historical norms.
The relationship between spot and futures pricing in China has shifted. The SGE Ag(T+D) spot price is now trading at a premium to SHFE futures, indicating a move into backwardation. The spread stands at approximately CNY 39/kg, or about $0.16 per ounce.
At the same time, Exchange for Physical (EFP) spreads on COMEX have turned negative for the May 2026 contract, reflecting increased demand for immediate delivery relative to forward contracts.
These developments indicate localized tightness in near-term physical supply, even as inventories increase. The coexistence of rising inventories and backwardation suggests that replenishment has not fully resolved underlying demand pressures.
Silver premiums in China have remained elevated despite inventory growth. Recent pricing shows silver trading at approximately $84.7 to $85.36 per ounce in Shanghai compared with $74.35 to $74.9 per ounce in London.
This corresponds to a premium of approximately $10 to $10.35 per ounce, or roughly 13% to 13.5%. The premium has reached a five-week high, indicating that the increase in local supply has not compressed pricing differentials.
In contrast, physical premiums in Singapore have normalized. Dealer estimates suggest that premiums have declined by more than 60% compared with earlier in the year, reflecting improved supply conditions in that market.
The divergence between China and Singapore indicates that regional supply-demand balances remain uneven.
Futures and options data show consolidation around key price levels. SHFE silver prices continue to hover near the CNY 20,000/kg level, with recent closes around CNY 19,586/kg.
Options positioning indicates concentration around this level. Call open interest has increased at the CNY 21,000 strike, while positions at higher strikes, such as CNY 23,000, have been reduced. On the downside, put open interest has increased at the CNY 19,000 and CNY 18,000 levels.
The put-call open interest ratio shows a correlation of approximately 0.57 with price movements year-to-date, indicating that options positioning is reacting to price changes rather than leading them.
The clustering of positions around the 20,000 level suggests that the market is currently defining a consolidation range rather than trending strongly in one direction.
Open interest on the SHFE has increased to approximately 520,399 contracts, representing the highest level recorded since early March. This increase follows a period of reduced participation earlier in the year.
The rise in open interest indicates that market participants are re-entering the futures market, although positioning remains below historical peaks.
For bullion dealers, the current structure reflects a transition from extreme scarcity toward partial normalization. While Shanghai inventories have increased by over 300 tons in recent weeks, premiums remain near $10 per ounce above LBMA, indicating that replenishment has not fully balanced demand. Monitoring whether premiums begin to compress alongside rising inventories will provide a clearer signal of supply stabilization.
For conservative investors, the combination of inventory rebuilding and sustained premiums suggests that physical demand remains intact. The fact that inventories are still significantly below 2021 highs, despite recent inflows, indicates that the system remains structurally tight. At the same time, normalization in markets such as Singapore shows that regional conditions can adjust more quickly where supply becomes available.
For traders, the current setup defines both a near-term range and a longer-term directional bias. In the near term, the market appears to be consolidating around the CNY 19,500 to 20,000/kg range, equivalent to approximately $78 to $85 per ounce. Options positioning around the 20,000 level and the presence of downside protection at 18,000–19,000 suggest that prices may remain range-bound unless a new catalyst emerges.
Over the longer term, the persistence of double-digit premiums in China, combined with the earlier inventory depletion and ongoing redistribution of metal, indicates that upward pressure remains embedded in the market. If inventories stabilize below historical norms and premiums remain above 10%, price levels above $90 per ounce become increasingly plausible. Conversely, a sustained increase in inventories toward pre-2021 levels accompanied by premium compression would indicate a more balanced market and reduce upward pressure.
Across inventory flows, regional pricing, and futures positioning, the data describes a silver market that is rebuilding supply while maintaining underlying demand strength, resulting in a controlled but still elevated price structure.
Hugo Pascal’s observation about the AU9999 contract hitting a 10-week volume high underscores the increasing significance of physical gold trading on the Shanghai Gold Exchange. This trend not only highlights robust domestic demand in China but also reflects broader shifts in the global gold market toward physical-backed assets.
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