A silver price gap between Shanghai and London does not necessarily offer arbitrage. Assessing the premium requires comparable contract terms, VAT treatment and delivery costs—not just converting a quoted price into another currency.
Two Screens, Not One Price
Investors often see a significant price difference on charts between silver on the Shanghai Gold Exchange (SGE) and the London LBMA benchmark. Sometimes this gap, known as the "Shanghai premium," looks like an opportunity for a quick trade. However, a direct comparison of quotes from two different screens can be misleading.
A price is more than just a number. It reflects specific obligations: what exact product will be delivered, where, when, and under what conditions. To understand if a real economic premium exists, one must examine the contract details and account for taxes and other costs.
Kilograms, Ounces, and Different Obligations
The London benchmark and Shanghai contracts both pertain to silver, but they describe different instruments. The requirements for metal quality and delivery terms must be checked separately.
The LBMA Silver Price is a price determined at an auction once per business day at 12:00 London time source: ICE. It is set in U.S. dollars per troy ounce for unallocated silver for delivery in London (loco London) source: LBMA. This is a benchmark used by major market participants.
The Shanghai Gold Exchange (SGE) offers several silver contracts, and their terms differ:
- Ag(T+D) is a margined contract with deferred delivery. The price is quoted in yuan (CNY) per kilogram, and the trading lot is 1 kg source: SGE. The delivery standard for this contract is 15-kilogram bars with a purity of at least 99.99%. Participants can roll over their positions rather than necessarily demanding physical delivery source: SGE. Therefore, high turnover in this instrument does not equal the volume of metal withdrawn from the exchange.
- Ag99.99 is a physical contract. The price is also in CNY per kilogram, but the trading and delivery lot are the same—a 15-kilogram bar with a purity of at least 99.99%, delivered on a T+2 basis source: SGE.
Simply converting dollars per ounce to yuan per kilogram is not enough. We are comparing fundamentally different obligations: an auction benchmark in London and an exchange-traded contract (either margin-based or physical) in Shanghai.
Why the Tax Base Changes the Percentage
A key factor that is often overlooked is the value-added tax (VAT). Prices on the SGE may include VAT, which fundamentally changes the premium calculation.
Article 10 of the PRC's VAT Law, effective since January 1, 2026, sets a general rate of 13% for the sale and import of goods, with certain statutory exceptions. Under the general calculation method, the tax payable accounts for input VAT deductions according to established rules PRC VAT Law. An SGE notice from March 26, 2019, specifies a 13% rate effective from April 1 for special VAT invoices on physical silver delivery by sellers who are exchange members or corporate clients SGE notice. This is not a universal characteristic of all financial or retail silver transactions.
To compare a price with VAT to one without it, you must first bring them to the same tax base. To assess a participant's actual costs, it is also important to know whether they are eligible for a deduction.
Let's consider a hypothetical editorial example, which is not a market quote:
- The comparable price in London, excluding VAT and converted to yuan per kilogram, is 100 notional units.
- The on-screen price in Shanghai is 120 notional units, and it includes 13% VAT.
The on-screen difference between the numbers is 20%, but they relate to different tax bases. To find the second price excluding VAT in our example, you need to divide 120 by 1.13:
120 / 1.13 ≈ 106.19
The difference between the notional prices excluding VAT is about 6.2%: (106.19 / 100 − 1) × 100 editorial calculation based on the stated tax assumption. This is not an estimate of the current SGE premium or a net arbitrage profit: transportation, financing, and other costs are not calculated here.
An original hypothetical editorial calculation, not current quotations or the SGE premium. Assuming the same metal, weight and currency, a price of 120 including an assumed 13% VAT becomes 120 / 1.13 ≈ 106.19 excluding VAT, about 6.19% above the reference of 100. Tax and deduction applicability depend on the transaction; other costs are not evaluated. Tax context: China's VAT Law. The prices are illustrative assumptions, not data from the law. PRC VAT Law. Data CSV.
Price and Metal Flow: Different Kinds of Evidence
A high premium on a chart does not prove that metal is currently moving en masse from London to Shanghai. The price spread is just one indicator, while physical flows are confirmed by customs data, which is published with a delay.
In its World Silver Survey 2026 report, the research firm Metals Focus estimates gross silver bar exports from mainland China for 2025 at 5,041 tonnes. Of this flow, 1,499 tonnes were destined for the United Kingdom World Silver Survey 2026, Chapter 6. This is an estimate of the annual trade flow from the report, not our independent recalculation of customs data.
These figures reflect annual gross flows and cannot serve as proof of a momentary arbitrage opportunity caused by a specific on-screen spread.
Final Investor Checklist
Before drawing conclusions about the Shanghai premium, ask yourself a few questions. This will help separate market noise from real data.
- Contract: Which specific instruments are being compared? The margin-based Ag(T+D), the physical Ag99.99, or the London spot benchmark?
- Time: Were the quotes taken at the same moment, accounting for time zones? The LBMA Silver Price is determined at a daily auction on business days.
- Units: Is the price quoted per troy ounce or per kilogram? Was the currency converted at the current exchange rate?
- Taxes: Does the Shanghai price include VAT? What are the applicable rate and deduction rules, and have both prices been brought to the same tax base?
- Delivery Location: What is the delivery location specified in the obligation—London or Shanghai?
- Additional Costs: Does the premium calculation account for transportation, insurance, transaction financing, and customs duties?
- Data Source: How reliable is the source showing the premium chart? Does it specify all the parameters listed above?
A careful analysis of these factors allows you to see a more accurate picture and make a well-informed decision based on facts, not headlines.
This article does not constitute individual investment or tax advice. Any transactions with precious metals require independent analysis and risk assessment.