Silver's Supply Chain Shock: A New Threat Emerges

Silver fell 2.23% to ~$74.10 as US-Iran talks collapsed. China's sulfuric acid export ban threatens 70% of silver supply from copper mining, deepening a multi-year market deficit.

The price of silver fell to approximately $74.10 per ounce on April 13, 2026, a daily drop of 2.23%. This decline was triggered by the collapse of US-Iran peace talks in Islamabad and the subsequent US naval blockade of the Strait of Hormuz, which took effect the same day. Since the onset of the wider conflict, the metal has shed more than 20% of its value. Yet beyond these immediate geopolitical headwinds, a more insidious threat is building on the supply side, one that could reshape the market's fundamentals regardless of diplomatic outcomes.

China intends to halt exports of sulfuric acid starting next month, a ban that could remain in place until the end of 2026. While this appears to be a chemical industry issue, its repercussions are dire for global silver production. Approximately 70% of the world's silver supply is a by-product of copper mining, a process that relies heavily on sulfuric acid for heap leaching. Chile, the world's largest copper producer, imports over one million tonnes of the chemical from China annually. Prices for the acid in Chile have already surged 44% in a single month following initial supply disruptions from the Hormuz blockade.

Major copper producers openly state they will struggle to maintain output levels in the second half of the year. Those without long-term contracts are now paying spot prices from alternative sources, which are 40% to 60% higher than before the Chinese ban. This compounds pressure on a market already facing a severe structural deficit. According to the Silver Institute, demand outstripped supply by about 95 million ounces last year. For 2026, the deficit is forecast at 67 million ounces, marking the sixth consecutive year of shortfall.

Industrial demand from solar panels, AI data centers, and electric vehicles accounts for more than half of global silver consumption. This industrial reliance makes the metal more sensitive to growth and inflation signals than gold. The Hormuz blockade is directly fueling those inflationary pressures. Brent crude oil jumped 7% to $102 a barrel following the blockade announcement, a 40% increase since the war began, with WTI climbing to $104. Rising energy costs bolster the case for the Federal Reserve to delay interest rate cuts, strengthening the US dollar. A stronger greenback makes dollar-priced silver more expensive for international buyers, dampening its appeal.

Investors are now focused on the upcoming US Producer Price Index (PPI) data for March. A higher-than-expected reading would likely cement market expectations that rate cuts for 2026 are off the table, potentially sending the dollar higher and adding to silver's burdens. Even if the geopolitical situation eases, the sulfuric acid problem persists. Some analysts believe China will maintain its export ban for an extended period independent of the conflict, suggesting the supply shock is only beginning.

Despite the current price weakness, underlying physical tightness is evident. The COMEX coverage ratio stands at a mere 13.4%, and physical inventories in key hubs like London, New York, and Shanghai are shrinking rapidly. Concurrently, China is importing silver at a pace not seen in eight years, purchasing nearly 470 tonnes in February alone—a record high for that month. This robust industrial and investment demand continues to press against the constrained supply.

The market's reaction to the Hormuz blockade has been relatively muted, with equities declining only moderately. This suggests investors had already priced in a significant portion of the geopolitical risk. Silver's current slump reflects a sober recalibration driven by a firmer dollar and profit-taking after a recent rally, rather than outright panic. The immediate headwinds are powerful, but the structural supply deficit remains a potent counterweight, setting the stage for a prolonged battle between short-term financial pressures and long-term physical scarcity.