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Rising Home Appliance Demand Boosting Silver Demand in China

Bullion Bulletin Research

Introduction:

China has emerged as one of the major hubs for electrical and electronics last decade. In fact, this sector is the major contributor in China’s National GDP. Ministry of Industry and Information Technology of China has categorized this industry into multiple segments, viz, consumer electronics, electric components, photoelectric apparatus, Broadcasting/TV industrial devices, electronic apparatus, communication devices, electronic materials, radar devices etc. and since 2001 the industry has clocked double digit growth until economic crisis in developed world hit the emerging market as well in late 2008. With this growth, demand of silver has also grown exponentially in China. Fig. 1 shows that demand of silver has grown at a CAGR of 8.86% from 2002-2011 in China, surpassing the growth of other two largest economies in the world, USA and Japan.

 

 

 

 

 

 

 

Electricals and Electronics:-

As silver has the highest electrical and thermal conductivity, it is used extensively in electrical and electronics sector contributing to largest chunk of total silver industrial fabrication demand. As per the GFMS report, from 149 Moz (4653 tons) in 2002 this segment has grown (@ CAGR of 5.04%) to 244.75 Moz (7607 tons) in 2011. During this period silver demand for electronic sector in both China and USA had grown more than the world in CAGR basis, as is visible in Fig.1. But China’s growth was better than USA because demand emanated from China’s startling economic growth. Not only domestic demand had increased, but China also emerged as the major global electronic manufacturing hub. As per the China MMIT figure, the sales revenue generated by the sector has grown manifold to be at 6.36billion RMB in 2010 from 1.09 billion RMB in 2001. This is a growth of 19% on CAGR basis.

 

 

 

 

 

 

 

 

 

Now coming to silver, electronics is the largest component, accounting for 45% of world’s silver industrial demand. For China, in absolute terms, the demand has grown from 532 tons in 2002 to 1243 tons in 2011., i.e. around 16% of world demand in electronic fabrication.

When a country has large population with strong economy, the domestic demand tends to grow at brisk pace. With every house bought, a refrigerator, a washing machine, a color TV and small home appliances are also sold.  As per MIIT observation, over 800 million people reside in China’s rural areas. As the divide between rural and urban population is shrinking and the rural areas are becoming more developed, there is a growing market demand and customer base for consumer electronics products.

Interestingly, almost every home appliance mentioned consumes a bit of silver. Chinese economy grew at an average of 10% (as per The World Bank) since the country initiated the market reform in 1978. Though the growth slowed down due to global recession in 2012, still country’s growth is the highest in the world.  With growing urbanization these products will continue to maintain their market share in the domestic market.

 

 

Apart from domestic demand, being a major global manufacturing hub for electronics, China’s export has grown manifold during the last decade. Fig 4 shows that China had exported US$ 35.85 billion in 2008, from $21.76 billion in 2005, i.e. a growth of more than 60% in a span of 4 years. It happened, because global economy was in boom. As catastrophe struck US economy in form of sub-prime crisis, China also got struck. In 2009, the export dropped to $30.81 billion.

 
 

Despite the global slowdown, the household demand for home appliances remained robust in China. Chinese government had given a special tax rebate of up to 13% especially on white goods and consumer electronics to rural areas to boost demand. According to the National Bureau of Statistics of China, quoted in World Silver Survey 2012 by Thomson Reuters GFMS, 66.7 million washing machines, 139.1 million domestic air conditions, 96.9 million household refrigerators were produced in 2011. Because of this initiative, each product saw a healthy double digit growth.

 

China has established a strong economy backed by a robust manufacturing hub especially in electronics segment. Strong economic growth and rapid urbanization will keep the demand for home appliances in the years to come. At the same time, global electronic giants have set up their manufacturing base in China, as manufacturing cost in China is comparatively much lower than any other destinations in the world. So, as the world’s fastest growing economy, China will continue to remain demand as well as global supply hub for electronic goods and demand of silver will continue to remain robust. The usage of silver is so varied in electronics that if there is slowdown in one sector, demand will come from the other.