Silver's Overlooked Supply Shock: Why Hormuz, China, and Industrial Demand Could Drive Triple-Digit Prices

While markets have treated silver primarily as a monetary metal, powerful physical forces a 30% cut in global sulfuric acid exports via the Strait of Hormuz, China's strategic decision to hoard rather than suppress prices, and accelerating industrial demand from solar, EVs, AI data centers, and defense are converging. The result may be one of the most asymmetric setups in commodities for Canadian resource investors.

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Silver’s Overlooked Supply Shock: Why Hormuz, China, and Industrial Demand Could Drive Triple-Digit Prices

 In a wide-ranging interview on The Real Story with Michelle Makori, economist and monetary historian Alastair Macleod laid out a compelling case that silver is being fundamentally mispriced. While copper and nickel have roughly doubled in recent months on supply constraints, silver — which should be exhibiting even stronger industrial tailwinds — has lagged. The reason, Macleod argues, lies in an overlooked physical supply disruption stemming from the conflict in Iran and the closure of the Strait of Hormuz, layered on top of a profound strategic shift by China and surging structural demand from electrification and technology. For Canadian mining investors, this analysis carries direct relevance. Silver is officially designated a critical mineral in both Canada and the United States. Canadian silver producers and explorers on the TSX and TSXV stand to benefit disproportionately if physical tightness translates into sustained higher prices. The current environment — where paper market dynamics appear to be losing their grip — may represent one of the more asymmetric opportunities in the resource sector.

The Hormuz Sulfuric Acid Shock

Most commentary on the Strait of Hormuz focuses on oil. Macleod highlights a downstream consequence that has received far less attention: sulfuric acid. The closure of the Gulf has cut approximately 30% of global sulfuric acid export supply. China, the world’s largest exporter, responded by imposing a total ban on exports effective May 1. Sulfuric acid is the standard and most efficient reagent used in the refining of copper and nickel ores. Because roughly 56% of global mined silver is produced as a byproduct of copper and nickel refining, any sustained disruption in sulfuric acid availability directly constrains silver supply. There is a natural lag. Shipping times from major producers such as Chile to Asian refiners, plus processing time, suggest a 5-to-7-week delay before the impact fully registers in refined metal output. Macleod notes that oil itself has already shown similar regional price divergences, with physical barrels in Asia trading at substantial premiums to Western benchmarks. The same dynamic is likely at work in sulfuric acid and, by extension, in the metals that depend on it. This is not a standalone shock. It compounds an already tight silver market that has been in structural deficit for years. When combined with other constraints, the effect on available refined silver could prove material.

China’s Strategic Pivot: From Price Suppressor to Net Importer

Perhaps the most consequential development Macleod identifies is China’s change in policy toward silver. For decades, China acted as a major silver exporter and effectively managed (suppressed) the price, keeping it below the psychologically important $50 level. That changed in late September/early October 2025. At the same time China restricted rare earth exports, it stopped flooding the market with silver. The timing was not coincidental. The U.S. Geological Survey had just recommended that silver be added to the critical minerals list. From China’s perspective, continuing to export silver at suppressed prices would simply feed U.S. strategic stockpiling efforts. Instead, China chose to retain its own supply. The data confirms the shift. In the first quarter of 2026, China imported a record 1,630 tonnes of silver. March alone saw 836 tonnes — nearly 2.5 times normal flows and the largest single-month inflow on record. This occurred despite China being both a major miner and refiner of silver. The only logical explanation is a deliberate strategic decision to accumulate and conserve the metal domestically.Macleod ties this to a broader pattern of resource nationalism. China is evaluating its position holistically amid global uncertainty and has decided, for now, that it will not subsidize the rest of the world’s silver needs. This removes a major historical source of supply from the Western market.

Industrial Demand: The Overlooked Driver

While monetary demand for silver has been modest and relatively stable (global silver ETFs have shown little net growth despite price volatility), industrial demand has accelerated sharply.Key growth areas include:

• Solar photovoltaic production (India’s major conglomerates are investing billions under government incentives).

• Electric vehicles.

• AI data centers and electronics (a single large data center can consume roughly one-third of a tonne of silver).

• Defense applications, where depleted missile and ordinance stocks from conflicts in Ukraine and the Middle East are driving urgent replenishment needs.

Silver’s superior electrical and thermal conductivity makes it difficult to substitute in many of these applications. Macleod argues that silver should therefore be priced primarily as an industrial metal with precious-metal characteristics, rather than the other way around. Markets, however, have continued to treat it largely through a monetary lens — a habit that has contributed to the current mispricing.

COMEX Dynamics Signal a Potential Squeeze

One of the clearest signs that paper-market control is weakening appears in futures market data. Open interest on COMEX silver has fallen to levels not seen in nearly 20 years. This collapse indicates that speculative interest has dried up and, more importantly, that the major market makers and bullion banks (the “swaps”) are actively reducing their short exposure. These institutions have historically been comfortable running large short positions in silver because they could offset them with long positions in London and profit from trading spreads while keeping the price subdued. At current price levels, those short positions have become uncomfortably large and risky. With liquidity in London also constrained (much of the visible silver is tied up in ETFs and industrial holdings), the ability to cover shorts has diminished. The result is a market in which the traditional mechanism for capping prices — aggressive shorting by bullion banks — is breaking down. When open interest is this low and the dominant players are stepping back from short positions, the conditions for a sharp upward move become more favorable.

Why This Time Is Different

Silver bulls have long cited structural deficits and industrial demand. What distinguishes the current setup, according to Macleod, is the combination of:

• An acute, geopolitically driven supply shock (sulfuric acid) with a measurable lag.

• China’s permanent shift from exporter/suppressor to net importer/hoarder.

• Accelerating, non-substitutable industrial demand across multiple high-growth sectors.

• Evidence that the paper market’s ability to suppress prices is eroding (collapsing open interest and banks reducing shorts).

These factors are converging at a time when silver remains priced far below what its industrial fundamentals would suggest when compared with copper and nickel.

Implications for Canadian Mining Investors

Canada is home to several significant silver producers and a large number of silver-focused explorers and developers listed on the TSX and TSXV. Many of these companies operate in stable jurisdictions and benefit from proximity to North American industrial demand.If silver moves meaningfully higher on physical tightness, the operating leverage in producing companies can be substantial. Explorers with high-quality projects in the right geological settings could also see significant re-ratings, particularly if they demonstrate the ability to deliver new supply into a tightening market. The critical mineral designation for silver in both Canada and the United States adds a layer of strategic importance. Governments are increasingly focused on securing domestic and allied supply chains for metals essential to electrification and defense. This policy backdrop can support permitting, financing, and offtake arrangements for credible projects.Investors should remain aware of risks, including commodity price volatility, execution risk on development projects, jurisdictional considerations, and the potential for short-term corrections even within a bullish structural trend. Position sizing and due diligence remain essential.

Outlook

Macleod expects the current stalemate in silver prices to resolve relatively soon — potentially within weeks rather than months — as physical realities assert themselves. While he avoids precise forecasts, he notes that the combination of persistent deficits, China’s changed policy, and strong industrial demand creates conditions for silver to at least double from recent levels by the end of 2026, potentially moving well into triple-digit territory. The setup is not without risk. Geopolitical developments, macroeconomic shocks, or a sharp equity market correction could create near-term volatility. However, the underlying physical drivers appear more durable than in previous cycles. For Canadian mining investors willing to look beyond short-term price action and focus on the structural fundamentals of a critical industrial metal, the current environment may offer a compelling opportunity to position ahead of a potential repricing.

Sources

• The Real Story interview with Alastair Macleod (Miles Franklin Media, 2026).

• Public data on China’s silver imports, COMEX open interest, and global silver supply/demand balances referenced in the interview.

• Industry context on sulfuric acid, copper/nickel refining, and industrial silver applications.

This article reflects publicly available information as of June 2026. Silver prices, supply dynamics, geopolitical conditions, and mining company developments change rapidly. Investors must verify the latest data and conduct independent research. Precious metals and mining investments involve substantial risk of loss.