New York-based commodities research consultants, CPM Group, forecast that silver prices will weaken further this year, “weighed down primarily by the increased price sensibility among investors.”
“Prices could potentially decline as low as $24 during the year,” CPM warned in its Silver Yearbook 2013, which was made public Thursday.
Prices averaged US$31.17 last year, down 11.7% from the record nominal annual average high or $35.29 in 2011. “Investors were interested in owning silver, but were only willing to buy more when prices softened. When prices rose they stepped away from making fresh purchases and often sold into the price rally,” said CPM.
Investment demand rose 32.1% to 122.5 million ounces in 2013. The amount of silver investors bought on a net basis in 2012 was the sixth highest level on record. “The increase in net investment demand can be attributed to bargain buying by investors,” said CPM. “Investment demand growth during 2012 was driven primarily by an increase in net additions to silver exchange traded product (ETP) holdings and investment demand in China.”
Silver ETP holdings rose 51.6 million ounces in 2012 to a total of 619.1 million ounces, a 9.1% increase over 2011. CPM forecasts that investment demand will decline by 105.7 million ounces this year, down 14% from last year. “Expectation of lower silver prices during 2013 is reducing interest from shorter term investors in early 2013 as they wait for still lower prices.”
The Silver Yearbook noted that total newly refined silver supply reached a record high of 981.6 million ounces in 2012, a 1.5% increase from 2011. “An increase in market economy mine supply was the primary driver of this growth, with an increase in secondary supply also helping to raise total refined silver supply. Market economy mine production reached 698.3 million ounces in 2012, up 12.4 million ounces from 2011.”
Silver mine output rose strongly in Mexico, China, Peru, Australia and Bolivia, with mine supply from these countries collectively increasing by 16.88 million ounces last year. Mexico mined a record 136.6 million ounces of silver last year, while China is estimated to have produced 122.2 million silver ounces.
Mexico’s silver production is forecast to increase to 137.7 million ounces this year, while Chinese silver mine production is expected to rise 5% to 128.3 million in 2013, CPM forecasts. Canada’s silver mine production declined for the eighth consecutive year to 17.6 million ounces in 2012 and is forecast to increase to 18.2 million ounces this year. U.S. silver mine production is forecast to rise to 41.2 million ounces this year, after declining to 36.9 million ounces in 2012.
Primary silver producers mined 192.6 million ounces last year, accounting for 24.4% of total silver mine production in 2012, according to the report.
The top primary silver-producing mine globally is the Fresnillo Silver Mine in Mexico, followed by Polymetal’s Dukat Silver/Gold Mine in Russia, Buenaventura’s Uchucchacua Silver Mine in Peru, Silver Standard’s Pirquitas Mine in Peru and Coeur d’Alene Mines’ Palmarejo Gold Mine in Peru.
The largest U.S. primary silver producer was Hecla’s Greens Creek Mine in Alaska.
The top silver producing mine globally was BHP Billiton’s Cannington silver/lead/zinc mine in Australia, followed by Fresnillo in Mexico, Goldcorp’s Peñasquito gold and silver mine in Mexico, KGHM’s Rudna Copper Mine in Poland, followed by the Dukat Mine in Russia.
The production-weighted average silver cash cost rose 19% in 2012 from $8.44 an ounce in 2011 to $10.04/oz in 2012. Costs during 2012 rose partly in response to the startup of new projects and partly in response to the increase in input costs, the report said.
Weaker silver prices this year are not expected to reduce mine supply in 2013, which is forecast to reach another record high of 721.1 million ounces this year from 698.3 million ounces in 2012, according to CPM.
Total silver supply is forecast to reach 982.6 million ounces this year, up one million ounces from last year.
Secondary silver supply rose to record levels in 2012, as pent-up sales of silver scrap, in anticipation of higher prices were released into the market in 2012.
Last year silver bullion inventories were up 3.2% to 847.7 million ounces globally. CPM estimates that unreported inventories decreased by 56.1 million ounces last year.
Silver fabrication demand declined 1.8% to 858.9 million ounces in 2012. “Lower demand from India in 2012, relative to 2011, weighed heavily on demand last year,” said the report.
“Jewelry and silverware are the largest source of silver fabrication demand and demand from this sector declined by 1.4% in 2012. Demand from this source declined most significantly in India and Western Europe, driven by weak economic conditions in these countries,” said CPM.
Silver coin demand dropped by 20.9 million ounces or 18% last year. The largest decline was reported by the Austrian Mint, whose sales fell by 9 million ounces. The U.S. and Canada had similar declines of between 6 million and 7 million ounces last year.
However, coin demand has begun to rebound this year as U.S. Mint sales of American Eagle silver bullion coins were 40.3% higher in the first quarter, CPM observed.
The most important driver of prices in the silver markets is investment demand, which rose 32.1% last year to 122.5 million ounces. The increase was driven by higher demand for exchange traded products, as well as stronger demand for silver bars, coins and medals in China. However, demand for silver coins globally fell 18% in 2012.
“Investment demand is expected to remain at historically high levels in 2013,” CPM advised. “Demand, however, may fall to 105.7 million ounces, a 17 million ounces decline from 2012. Prices are expected to trend lower throughout the year, which could weigh on investor interest in silver.”
To obtain a copy of the CPM Group’s Silver Yearbook 2013, go to the CPM Group Store at http://store.cpmgroup.com/shop/product/precious-metals
iPad Version: Picture – Bars of 1000 gram silver are seen in this picture illustration at a precious metal refinery in Istanbul: REUTERS/Murad Sezer