Derivatives tools help silver companies navigate through price fluctuations

Figures ① and ② show the finished silver ingots provided by Yunnan Precious Metals New Materials Holding Group Co., Ltd.

This spring, the silver market experienced a rare “rollercoaster” ride, with prices soaring and plunging sharply, and volatility intensifying.

Under such significant price fluctuations, the first to perceive the impact are often the consumers of silver jewelry. When silver prices surge dramatically, foot traffic at gold and silver jewelry stores drops sharply, and many dealers admit they are “holding inventory,” worried about stock inflows and outflows, and find it difficult to make decisions.

Recently, a reporter from Securities Daily conducted surveys of mid- and downstream silver companies in Shenzhen, Yunnan, Jiangxi, and other regions. The findings show that, amid this round of market shocks, the operating landscape of the silver industry has become increasingly segmented. Some leading companies, thanks to strict risk management systems, have successfully endured this extreme “stress test.”

By utilizing hedging tools such as silver futures and options, these companies have been able to tightly control operating costs and securely lock in profit margins, effectively hedging against price volatility risks and calmly responding to market changes. This practical battle centered on silver prices, risk control, and hedging not only demonstrates the confidence of silver enterprises in navigating turbulent markets but also vividly illustrates how futures markets serve the real economy with precision, safeguarding industry stability.

Volatility Highlights Market Risk Exposure

The primary consumption sector for silver is industry, with global industrial silver usage consistently accounting for over 60%. From the industrial chain perspective, upstream production mainly involves by-product mining; midstream focuses on deep processing and material manufacturing, transforming silver ingots into various industrial materials; downstream segments include industrial consumption and non-industrial consumption. Among these, photovoltaic silver paste, electronic components, 5G/semiconductors, and batteries are the core “main forces” driving demand.

Currently, China is vigorously promoting high-quality development of strategic emerging industries. Fields such as new energy, artificial intelligence, photovoltaic wind power, and 5G communications have become key engines for economic growth. As critical metal commodities, gold, silver, and copper are fundamental raw materials supporting the large-scale development of emerging industries. Silver producers play an important role in reducing costs, increasing efficiency, and achieving technological breakthroughs in these sectors.

Since the beginning of this year, influenced by international market price transmission, domestic silver futures prices have experienced intense fluctuations. In January, prices exceeded 31,000 yuan per kilogram; in February, a downward trend began, with the lowest dropping to 17,200 yuan per kilogram, a maximum decline of 44.5%. Since March, prices have continued to decline. Such extreme price swings have fully exposed the risk exposure along the silver industry chain, with companies feeling the market’s chill first.

Surveys reveal that, faced with high volatility in silver prices, companies involved in silver-related businesses have experienced markedly different impacts, with downstream demand companies being affected most directly.

JinkoSolar Holdings Co., Ltd. (hereinafter “JinkoSolar”) is a solar technology company listed on the STAR Market of A-shares, mainly engaged in R&D, manufacturing, and sales of photovoltaic products. Its public relations manager, Su Rong, told Securities Daily that some overseas orders for photovoltaic modules need to be signed several months in advance. Recently, raw material prices such as silver and copper have risen significantly, which has had a notable impact on the profit margins of the entire photovoltaic industry. “Silver paste is one of our main raw materials for producing solar cells. Due to rising silver prices, the proportion of silver in the module raw material costs has surged from less than 5% to over 20%,” Su Rong explained.

The sharp fluctuations in silver prices have even triggered credit crises in downstream markets. Zheng Ming (pseudonym), who has been engaged in precious metals sales for over 20 years, feels helpless in the face of this year’s turbulent silver market. He told Securities Daily that when silver prices hit historic highs, the spot market experienced a supply shortage. At that time, some dealers could sell 1 to 2 tons per day, with corresponding funds of 40 to 50 million yuan; their stores also sold 300 to 500 kilograms daily, with the largest single order exceeding 100 kilograms, worth over 4 million yuan, but often faced the dilemma of “orders without stock.”

However, as silver prices fell back, the market situation reversed completely. “After prices declined, many downstream clients became passive in procurement, unwilling to accept high-priced orders, and some even delayed orders or defaulted on delivery.” Zheng Ming cited an example: a long-term client had verbally agreed to buy silver at 30 yuan per gram. Due to mutual trust, the client did not pay a deposit. As silver prices continued to decline, the client refused to take delivery. To date, the price difference on this order has reached hundreds of thousands of yuan, and the goods remain stockpiled with him.

It is understood that the spot silver market generally adopts a market-based pricing model. When prices experience short-term extreme volatility, it often leads to an imbalance where upstream suppliers extend delivery cycles and downstream buyers are less willing to purchase, further increasing operational pressures along the industry chain.

Derivatives as a Safeguard

In the face of this year’s sharp fluctuations in silver prices, effective risk management of price risks has become a key factor in the survival and development of silver companies. Against this backdrop, derivatives such as silver futures and options have played a crucial role in risk control. Many leading companies, with mature experience in using derivatives, have successfully withstood this round of market tests.

Yunnan Precious Metals New Materials Holding Group Co., Ltd. (hereinafter “Yunnan Precious Metals Group”) is a provincial state-owned high-tech enterprise specializing in R&D, manufacturing of precious metal new materials, and resource recycling. Wu Hanying, deputy director of the company’s metals management center, told Securities Daily, “The high volatility of silver prices indeed poses certain risks to our production and operations.”

Wu Hanying explained that, generally, the company’s product pricing model is “metal price + processing fee.” In theory, this model can transfer some of the price risks. However, under conditions of high raw material price volatility, the company’s procurement and sales timing cannot fully hedge against price fluctuations, so some risk remains. In the first quarter, silver prices retraced by as much as 40%. Without appropriate risk management tools, this is akin to “swimming naked” in the market, facing enormous operational risks. Wu Hanying revealed, “In this round of market volatility, some small and medium-sized enterprises are on the brink of bankruptcy due to inadequate risk management; moreover, frequent changes in spot premiums and discounts have increased the difficulty of risk control.”

When risks materialize, how companies respond determines their fate. The reporter learned that among several interviewed silver companies, some have chosen derivatives as an important risk management tool during this price surge. From actual results, tools like silver futures and options have performed well, effectively fulfilling functions such as price discovery and hedging.

The reason why Yunnan Precious Metals Group can respond calmly is due to its years of continuous improvement in its hedging management system. Wu Hanying said, “During this extreme silver market, the company has always adhered to its hedging principles, elevating liquidity risk management to a high level, and ultimately using derivatives to achieve effective risk control. This has been the best stress test for our company’s price risk management.”

Not only midstream processing companies but also downstream demand enterprises actively use derivatives to manage risks. Su Rong introduced that JinkoSolar employs various hedging methods, with derivatives playing an important role. During rapid silver price increases, the company mainly hedges part of the risk through silver derivatives trading for overall risk control. The hedge positions, relative to the company’s monthly procurement volume, serve as a form of hedging.

In fact, the participation rate of midstream processing companies in the silver industry chain in hedging activities is steadily increasing. Especially leading photovoltaic silver paste and electronic material companies have incorporated derivatives into their routine risk management processes.

Futures Companies Take Action

The success of silver companies’ hedging efforts depends not only on their own risk awareness but also on the effective functioning of the futures market. Behind this is the deep integration of policy guidance and the professional capabilities of futures companies.

In July 2025, the People’s Bank of China and seven other departments jointly issued the “Guiding Opinions on Financial Support for New Industrialization,” which emphasizes industry demand-oriented development, improving the futures product system, and promoting the supply and stabilization of bulk commodities. Wu Qing, Chairman of the China Securities Regulatory Commission, stated at the Fourth Session of the 14th National People’s Congress that steady development of futures and derivatives markets should better meet the risk management needs of enterprises and residents.

Under policy guidance, futures companies are transforming their professional expertise into concrete actions to empower real enterprises. Cao Shanshan, a researcher at COFCO Futures Research Institute, told Securities Daily that during this round of silver price surges and declines, the market structure of upstream and downstream enterprises has become segmented, with derivatives tools becoming the core means of risk prevention. Different companies have different strategies. For example, for material and manufacturing enterprises, cost pressures have intensified, and basis and inventory management have become key to operations. Derivatives can lock in raw material purchase prices, better ensuring short-term profitability. Overall, the ability of silver companies to mitigate price risks relies on the professional services of futures firms, and the futures market will continue to contribute financial strength in the future.

“During this highly volatile silver market, Jinyu Futures helped silver companies establish a complete system from price risk identification to hedging plan formulation and execution,” said Wu Zijie, a researcher at Jinyu Futures. He explained that, in serving industrial enterprises, they provide layered, phased hedging plans based on order cycles, procurement rhythms, and inventory structures; during high volatility phases, they introduce nonlinear tools such as options and options-based trading to reduce margin pressure; and they strengthen intraday risk monitoring and scenario analysis, incorporating various fundamental information into a unified risk control framework.

Wu Jiang, senior analyst at Guotou Futures, noted that this year, with large silver price fluctuations, Guotou Futures actively assists enterprises through “service innovation + industry collaboration,” providing data services for sales strategies, including periodic supply and demand reports, cost curve analysis, and competitor tracking, deepening information exchange along the industry chain, and promoting bidirectional integration of research and industry operations. In the future, Guotou Futures will continue to strengthen research and product innovation to meet the diverse needs of real enterprises.

From panic to calm, the story of silver companies using derivatives to hedge risks reveals a simple truth: in markets full of uncertainty, risk management is not a choice but a necessity. When financial tools are deeply integrated with industry needs, and when policy guidance and professional services work in concert, real enterprises can navigate the storms steadily and far.