Silver’s Shanghai Pressure Point: Backwardation, Inventory Drain, and a Market Rebuilding From the Floor
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Silver’s current structure is being shaped by a combination of tightening physical inventories in China, rising futures participation, and persistent pricing premiums over international benchmarks. Recent data shows that while global prices remain under pressure, activity on the Shanghai Futures Exchange (SHFE) is increasing, and physical inventories continue to decline toward multi-year lows.
On the pricing side, SHFE silver closed 2.8% lower at CNY 17,843/kg, equivalent to approximately $80.67 per ounce. At the same time, the June 2026 SHFE contract traded as high as $85.6 per ounce, reflecting a divergence between spot and futures pricing within the domestic market.
Open interest on SHFE increased 3.5% week-on-week to 469,400 contracts, representing approximately 7,040 tons of notional exposure. This increase comes as both SHFE and COMEX positioning remain near historical lows, with COMEX open interest sitting at the 0.38th percentile over a 10-year range.
On the physical side, inventories continue to tighten. SHFE silver vaults recorded a single-day withdrawal of 45.35 tons, the largest in eight weeks, bringing total SHFE inventory down to approximately 323 tons (10.4 million ounces). Combined SGE and SHFE vault stocks now stand at approximately 614 tons, or 19.74 million ounces.
At the same time, Chinese premiums remain elevated. Silver is trading at approximately $84.7 per ounce in Shanghai versus $74.9 per ounce in London, representing a premium of roughly $9.8 per ounce, or about 13%.
These figures describe a market where inventories are tightening, futures participation is increasing from low levels, and regional pricing remains elevated.
Silver futures pricing on SHFE reflects tightening conditions in near-term delivery. Backwardation has been deepening, with near-dated contracts trading above deferred pricing. At the same time, the spread between SHFE futures and SGE spot pricing has widened.
The June 2026 SHFE contract is trading at a premium of approximately CNY 255/kg, or about $1.15 per ounce, over SGE Ag(T+D) spot pricing. Earlier readings also showed a narrower spread of CNY 147/kg, or approximately $0.65 per ounce.
The widening of this spread indicates increasing differentiation between futures and spot pricing within the Chinese market. While backwardation suggests stronger near-term demand, the widening premium between futures and spot reflects adjustments in forward pricing expectations.
Open interest on the Shanghai Futures Exchange has increased 3.5% week-on-week to 469,400 contracts, equivalent to approximately 7,040 tons. This increase follows a period where open interest had declined to near-decade lows.
Despite the recent increase, overall positioning remains historically low. COMEX open interest currently sits at the 0.38th percentile over a 10-year period, indicating that global futures participation remains limited.
The increase in SHFE open interest therefore represents a partial rebuild from low levels rather than a return to historically elevated positioning.
Physical inventories in China continue to show tightening conditions. SHFE vault stocks declined sharply following a single-day withdrawal of 45.35 tons, bringing total inventory to approximately 323 tons.
Combined inventories across SGE and SHFE stand at approximately 614 tons, or 19.74 million ounces. Earlier data showed combined inventories at 659.4 tons, indicating a continued week-on-week decline.
While there have been occasional inflows — including a 2.75-ton increase in SHFE vaults during one week — the broader trend remains constrained. SGE vaults declined by approximately 10 tons to 290 tons, while SHFE vaults recorded additional weekly outflows of approximately 3.1 tons.
These figures indicate that inflows remain limited relative to ongoing withdrawals.
Silver pricing in China continues to trade at a significant premium over LBMA benchmarks. Recent data shows silver trading at approximately $84.7 per ounce in Shanghai compared with $74.9 per ounce in London.
This difference represents a premium of approximately $9.8 per ounce, or about 13%. Earlier readings showed premiums of $9.2 per ounce, or approximately 12.7%.
The persistence of double-digit percentage premiums indicates that domestic demand remains strong relative to available supply. Premium stability across multiple sessions confirms that the price differential is not a one-off dislocation.
Despite the increase in SHFE open interest, overall positioning remains low across both Eastern and Western markets. At the same time, specific participants have increased short exposure.
CITIC currently holds a net short position of approximately 13,100 contracts, equivalent to roughly 197 tons of silver. This positioning occurs as SHFE prices attempt to move toward the CNY 19,000/kg level.
The presence of concentrated short exposure alongside rising open interest provides a measurable indicator of positioning within the futures market.
The SHFE silver futures curve has shown signs of adjustment. The curve is shifting upward and flattening, indicating that the market is pricing a potential easing of immediate supply constraints.
At the same time, the spread between SGE spot pricing and SHFE futures remains in contango, with the June 2026 contract trading approximately CNY 147/kg, or $0.65 per ounce, above spot.
The combination of flattening curves and contango conditions suggests that while near-term supply remains tight, forward expectations are adjusting.
For bullion dealers, the key figures remain Shanghai inventory levels and premiums. With combined vault stocks at approximately 614 tons and premiums holding near $9–$10 per ounce above LBMA, physical supply conditions remain constrained despite recent price corrections.
For conservative investors, the combination of low global positioning and persistent physical demand provides a measurable framework. Open interest across COMEX and SHFE remains near historical lows, while China continues to price silver at a double-digit premium. These conditions suggest that the market is operating with reduced leverage but sustained underlying demand.
For traders, the current structure presents two distinct timeframes. In the near term, prices are likely to remain within a volatile range defined by recent levels. With SHFE prices around $80–$85 per ounce and premiums supporting higher domestic pricing, the immediate range appears anchored between the mid-$70s and mid-$80s. The presence of concentrated short positions and rising open interest suggests continued two-sided price movement within this band.
Over the longer term, the combination of historically low positioning, continued inventory constraints, and persistent regional premiums indicates potential for upward re-expansion. If open interest rebuilds while inventories remain near current levels of approximately 600–650 tons in Shanghai and COMEX stocks continue to decline, price levels above recent highs become increasingly probable.
Across futures positioning, inventory levels, and regional pricing, the current figures describe a market rebuilding from low participation levels while maintaining measurable physical demand.
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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