World’s largest silver producer slams silver benchmarking controversy

Feb 1, 2016 - 2:18 PM GMT
by

The world’s largest producer of silver, KGHM, has weighed in on last week’s hugely controversial silver price benchmark, which was set some six percent below the prevailing spot price on Thursday.

The LBMA Silver Price – the crucial daily benchmark used by producers and traders around the world to settle silver products and derivatives contracts – was set at $13.58 per ounce on January 28. This was 84 cents below the spot and futures price at the time.

Since this has implications for any transactions based on the benchmark, there is a danger that the credibility of the process will be damaged and that users will seek other prices against which to do business, sources said.

KGHM, one of the largest producers of copper and the single largest producer of silver in the world, called the difference between the prices “very alarming” and called on the London Bullion Market Association (LBMA) to provide an explanation.

“The large discrepancy between the spot price and the fix is very alarming to us especially that it happened twice in a row,” KGHM head of market risk Grzegorz Laskowski told FastMarkets.

“I think the LBMA needs to make every effort to explain why it happened and needs to help to develop a system that would help to avoid these kind of situations in the future,” he added.

The ‘fix’ or ‘benchmark’, as it is now known, is still the global benchmark reference price used by central banks, miners, refiners, jewellers and the surrounding financial industry to settle silver-based contracts.

While some traders continue to use the 24-hourly traded spot price, larger players prefer the snapshot-style daily benchmark to settle bulkier contracts on a traditionally over-the-counter (OTC) market.

The price is set every day by five participants – HSBC, JPMorgan Chase Bank, The Bank of Nova Scotia, Toronto Dominion Bank and UBS – using a system run by CME and Thomson Reuters.

KGHM produced 40.4 million ounces (1,256 tonnes) of silver in 2014, according to The Silver Institute’s annual report.

(Additional reporting by Ewa Manthey, editing by Mark Shaw)