Silver as an investment

Thomson Reuters Releases Interim Silver Market Review

Mine Production Stagnates As Silver Coin Demand Hits Record High

(November 17, 2015 – New York City) At the Annual Silver Industry Dinner hosted by the Silver Institute, Erica Rannestad, Senior Analyst in the GFMS team at Thomson Reuters, presented the Interim Silver Market Review, which included provisional supply and demand forecasts for 2015. The following are highlights from the report.

  • Total silver supply is forecast to fall to 1,014.4 Moz in 2015, down 3% from the previous year. This decline is expected to be driven by flat mine production, a 5% drop in scrap return, and net de-hedging of 12.6 Moz. Mine production is slated to total 867.2 Moz this year, up 0.3% from a year ago. This would be the weakest performance since 2002, when mine production fell by 2%. Healthy increases in primary silver mine production, particularly in Mexico, were partially offset by losses in silver output from base metals mines. Scrap supply is expected to fall for the fourth consecutive year, continuing a downward trend that began after annual average prices and scrap levels peaked in 2011.
  • Silver bullion coin sales reached a fresh record high in the third quarter of this year, totaling 32.9 Moz, and are up 95% year-on-year, according to GFMS’s bullion coin survey. The slide in silver prices in July and August to six-year lows triggered a surge in buying in the silver coin market, particularly in North America where coin sales increased by 103% to a total of 23.6 Moz in the third quarter. This largely unexpected surge resulted in an unprecedented shortage of current year silver bullion coins among the world’s largest sovereign mints. Silver coin demand is forecast to increase 21% in 2015 to total a record high of 129.9 Moz. Coin demand should account for 12% of physical demand this year, up from 10% in 2014 and just 4% ten years ago.
  • Silver demand from the photovoltaics industry is forecast to increase by 17% to total 74.2 Moz this year, just shy of the record 75.8 Moz in 2011. Solar will make up 13% of total industrial demand, up from 11% in 2014 and just 1% a decade ago. Silver demand from ethylene oxide producers is predicted to increase 49% to total 8.0 Moz in 2015, the highest since 2010. Despite increased demand from these industries, total industrial demand is forecast to fall by 4% to 570.7 Moz, and to account for 54% of physical demand in 2015.
  • Total physical demand is forecast to contract by 2.5% in 2015, to 1,057.1 Moz, primarily driven by a 12.9 Moz drop in electronics demand. Demand from the electronics sector has been falling since 2011, largely owed to thrifting and the trend towards consumer electronics miniaturization. While these trends remain intact in 2015, the decrease has been precipitated by a weaker economy in China, where silver electronics demand is expected to decrease by 7.9 Moz, as well as in other developing countries such as India. China accounts for 28% of silver demand in global electronics fabrication.
  • Jewelry fabrication is forecast to total 218.9 Moz, a 2.5% decrease from last year’s level. Jewelry fabrication has increased at a healthy pace in Thailand (14%), the United States (9%) and Italy (8%), while Chinese jewelry fabrication has dropped 25%. This sharp decline is largely attributed to offshoring of jewelry manufacturing to Southeast Asian countries and weaker domestic silver jewelry consumption.
  • The silver market is expected to be in an annual physical deficit of 42.7 Moz in 2015, marking the third consecutive year the market has realized an annual physical shortfall. While such deficits do not necessarily influence prices in the near term, multiple years of annual deficits can begin to apply upward pressure to prices in subsequent periods. This year, however, net outflows from ETF holdings and derivatives exchange inventories on a year-to-date basis have lessened the impact of the physical deficit, bringing the net balance to ‑21.3 Moz.
  • Silver prices this year through 13th November averaged $15.91/oz, which was 18.3% lower than in the same period in 2014. The GFMS team at Thomson Reuters forecasts silver prices to average $15.51/oz for the full calendar year.

The table below is a reduced form of the full “World Silver Supply and Demand” table featured in the World Silver Surveys:

Silver Interim Update PR S.D 2015F Table (2)

©   Copyright Reuters Limited – November 2015.

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