Attention hasn’t exactly been lavished on the silver price this year. This seems bizarre given the strength in ETFs and the fact that it is an industrial precious metal. Considering the fall in both the gold and silver price in 2013 it is not surprising to read the above headline, however here at The Real Asset Company, silver investment was definitely the more popular of the two towards the end of the year.
CPM Group, a consultancy, has released their Annual Silver Yearbook which includes their outlook for 2014. They believe prices will continue to consolidate last year after short-term investors lost faith in the metal and moved into other assets.
The lower price that is expected for this year is likely to put pressure on secondary supply channels, as it will become less attractive to sell silver for scrap. Previously a significant percentage of silver in industry is from recycled demand.
The rest of the report, brilliantly summarised by Dorothy Kosich, looks at price action, demand and most interestingly, supply.
Total global silver supply is forecast to reach 997.6 million ounces this year, commodities consultants CPM Group predicted Monday in its Silver Yearbook 2014. Mine supply is expected to increase while secondary silver supply will further decline in this year due to lower silver prices.
Fabrication demand for silver is forecast to continue rising this year as investors are expected to buy more silver coins, following a record year of global demand.
The silver price averaged $23.75 per ounce last year, down 23.8% from $31.17 averaged in 2012.
“Furthermore, silver prices are expected to consolidate this year, with limited downside potential,” said the yearbook. Lower silver prices anticipated again this year may reduce the level of silver secondary supply or scrap entering the market.
In its Silver Yearbook 2014, CPM blamed shorter-term investors – disillusioned by the inability of silver to rise strongly following the highs reached in 2011 and moved their funds to other asset classes – for the weakness of silver prices last year.
Investment demand declined 42% to 105.3 million ounces last year to the lowest level of silver investment demand since 2008 when investors bought 64.8 million silver ounces. Nevertheless, 2013 was still the 10th highest level of annual net silver investment demand since 1960, CPM noted.
Meanwhile, total refined silver supply declined 2.4% to 971 million ounces in 2013, driven by a 19% reduction in secondary supply, said CPM. However, market economy mine production rose to a record high 741 million ounces in 2013, up 4.1% from 2012.
The top three silver producing nations – Mexico, China and Peru – contributed 65% of this growth with Mexico recorded the highest level of growth with output rising by 9.6 million ounces. Canada and Russia record declines in silver output last year, down 1.9 million and 1.3 million ounces, respectively, according to CPM.
Presently there are an estimated 895.8 million ounces of silver mine production capacity in existence. “Primary silver mines are expected to make a greater contribution to silver production in the years going forward,” CPM predicted.
Cash costs for silver production dropped for the first time last year since 2002. The drop in 2013 costs “mainly reflected aggressive cost control measures adopted by some of the higher-cost silver producers, shutdowns of marginal mining operations, and a few mines that began in commercial production in 2012 optimizing their operations during ramp-up, which helped bring down their cost,” said the report.
The production-weighted average silver cash cost was $9.68 per ounce last year.
Reported silver bullion market inventories increased moderately to 816.6 million ounces last year, a slower rate of growth than the 16.3% increase in 2012. CPM estimated that unreported inventories were down by 15.5% or 36.7 million ounces last year. Private investors are considered the largest holders of silver.
Meanwhile, CPM estimated that more than 24.1 billion ounces of silver are held in jewelry, decorative objects, religious statues and other forms, while another 24.9 billion ounces are simply unaccounted for.
Silver fabrication demand rose 6.3% to 865.8 million ounces in 2013, driven primary by higher demand for jewelry and silverware and from silver’s use in solar technology. Silver demand also rose for chemical catalysts, brazing alloys and biocides, which helped offset weakness in demand from photography and electronics, CPM observed.
Demand from jewelry and silverware rose to 266.5 million ounces last year, the highest level of demand since 2003, partly due to gold import restrictions in India.
CPM forecast that demand from the electronics and batteries sector is forecast to rise to a record high 221.7 million ounces of silver this year, up 1.5% from 2013. Meanwhile, demand for silver in catalysts is forecast to continue growing this year to 21.1 million ounces.
Growth in silver demand for the photovoltaic industry rose 46.4% to 69.5 million ounces last year.