India's silver demand to stay weak unless prices fall

A shopkeeper displays silver jewellery at a shop in Jammu, August 27, 2007. REUTERS/Amit Gupta/Files

By Ruchira Singh

MUMBAI (Reuters) - India's silver demand is likely to stay weak in the next four weeks unless prices see substantial falls, dealers and an analyst said on Friday. While gold is the 'necessary' precious metal that people buy for marriages irrespective of the price, demand for silver has been hit the most with prices having recently seen record highs.

"There has been a sporadic demand for silver in the second half of this year... it's been just a tonne here and there," said Rajan Venkatesh, director, India bullion at ScotiaMocatta, one of the largest precious metals sellers.

Silver prices hit a 27-year high early November rising above $16 an ounce as a rally in gold on the back of credit market problems and a weak outlook on U.S. growth, lifted the white metal.

Prices are currently at $14.02, down by 12 from the high, yet Indian sellers say it is still expensive to Indians.

A large silver trader based in Zaveri Bazaar, Suresh Hundia of Hundia Exports, said demand could revive only if prices fall to around 13,500 rupees per kg.

On Friday, silver being sold by banks was quoted at 18,505 rupees per kg, down from 19,221 rupees the previous day. The year's high in silver was at 21,625 rupees.

"At the current rates, silver buying is not possible," Hundia, also the president of Bombay Bullion Association, said.

Hundia said imports of silver in October and November for festivals was one-fifth compared to last year.

However, one large wholesaler in Hyderabad said some rural silver demand may come in after mid-January when an auspicious phase starts for weddings and money from harvest flows into silver for investment.

India's silver consumption is around 4,000 tonnes, most of which is imported.

Traders say demand for silver jewellery is dipping as consumers are chosing to pay a extra to buy the more valuable gold. But demand from industrial use such as electrical and electronics appliances is supporting the metal.

A technical analyst in Karvy Comtrade Ltd, Aurobinda Prasad said the possibility of no more rate cuts in the U.S. may keep the dollar firm and therefore silver prices around current levels.

Prasad said the benchmark March contract on the Multi Commodity Exchange of India Ltd may fall to 18,000 rupees in the next two to four weeks if it breaks 18,500 rupees.

March silver traded at 18,667 rupees on MCX at 5:53 p.m.