Consumption may climb to 7,700 metric tons after gaining 6 percent to 8 percent in 2012, Shi Heqing, an analyst at Beijing Antaike, said in an interview on Oct. 22. About 33 percent of the country’s demand comes from jewelry and coins, with the rest from industrial use in photography, solar and electrical appliances, according to Antaike, which has studied metals for two decades.

Investors in China are buying more silver as the second- largest economy slowed for a seventh quarter, the Shanghai Composite Index is heading for a third straight annual drop and property curbs are limiting prices. Silver climbed 15 percent this year and holdings by exchange traded funds gained 6.5 percent this year after touching 592 million ounces last week.

“Chinese investors want hard assets such as silver, especially when it’s cheaper than gold and requires less funding,” Shi said. “Many producers and investors have hoarded the precious metal in the form of ingots or unwrought silver.”

Silver rose 53 percent in the Federal Reserve’s first round of quantitative easing from December 2008 through March 2010, twice as much as gold, and 24 percent during the second phase ending in June 2011, three times as much. The U.S. central bank announced a third round of QE on Sept. 13. Silver will probably beat gold in the next several quarters,Morgan Stanley (MS) predicts.

Jewelry Sales

China’s jewelry sales jumped by 19.3 percent in the first eight months from a year earlier, Shi said, citing the National Statistics Bureau. The government doesn’t give a breakdown on jewelry sales.

“I’m bullish on silver, so I personally have stockpiled 3 tons of it at home,” Yang Guohui, president at Hunan Yishui Rare & Precious Metals Recycling Co., said in Xiamen on Oct. 17. Yishui is based in Yongxing County, Hunan province, where about 20 percent of China’s silver is from, according to Huang Xiaoming, head of the local precious metals management bureau.

The spread between Chinese and overseas prices is about $40 a kilogram because ofimport duties and transportation costs, Guan Bingren, a trader at Shanghai Hedge International Trading Co., said yesterday. The premium rose to more than $200 in May 2011 when investors bid up the metal on the Shanghai Gold Exchange amid a “frenzy” of speculation, Guan said.

Solar Industry

A recovery in the solar industry may add to demand, Shi said. The government is targeting 21 gigawatts of solar-power installations by 2015 after installing 2.6 gigawatts in 2011, according to Bloomberg New Energy Finance.

China’s economy expanded 7.4 percent in the third quarter, compared with 7.6 percent in the April-June period. The nation’s benchmark equity gauge, the Shanghai Composite Index, has declined about 3.8 percent in 2012. China’s September new home prices rose in fewer than half the cities monitored by the government from a month earlier.

Silver for December delivery on the Comex in New York traded at $32.115 an ounce at 3:28 p.m. in Beijing. Gold futures traded at $1,712.60 an ounce, making it 53 times more expensive.

Output in China, the third-biggest producer, may reach a record 13,000 tons this year from mining, smelting, refining and recycling, according to Wang Jian, deputy head of the China Nonferrous (1258) Metals Industry Association.

“You don’t feel there’s a huge oversupply of silver in the domestic spot market,” Shi at Antaike said. “It’s hard to estimate because it’s not transparent.”