While silver prices have definitely been battered in recent weeks, Neal Meader of Thomson Reuters GFMS suggested “unique factors” that contributed to the retreat in price may be overcome in the short term.
Meader, the head of precious metals research and forecasts for Thomson Reuters GFMS, cautioned that the lift, which originally wasn’t anticipated by Thomson Reuters GFMS until the second half of this year, could come sooner, briefly sending silver prices to $30 per ounce.
His remarks were made prior to the release of The Silver Institute’s World Silver Survey 2013 Wednesday morning in New York City.
Silver’s actual price declined 11% last year to $31.15, the World Silver Survey found.
Thomson Reuters GFMS estimated total silver supply at 1.048 billion ounces in 2012, up from 1.039 billion ounces in 2011.
In the annual survey, GFMS noted that silver mine production achieved a new record high of 787 million ounces in 2012 as global silver output rose 4%. “Nevertheless, this growth actually fell short of our expectation that mine output would touch 800 Moz,” said the report.
By-product production from the lead/zinc sector provided much of the growth, up 9%, with strong growth in China, Mexico and India. Primary silver mine supply only grew 1%. Mexico was the world’s largest silver-producing country, followed by China, Peru, Australia and Russia, according to the World Silver Survey.
While Thomson Reuters GFMS expects silver mine supply to grow again this year, it will be at a much more muted rate with an important contribution coming from Barrick’s Pueblo Viejo joint venture in the Dominican Republic.
Silver mine cash costs rose for the third consecutive year in 2012, by 9%, to $8.88 ounces. The good news is that with silver prices well exceeding cash costs even after the recent decline in prices; primary silver producers remain in relatively good shape.
The survey revealed that total silver fabrication demand declined for the second consecutive year by 6.6% to a three-year low of 846.8 million ounces, reflecting losses in all areas including industrial, jewelry, and coins and medallions. Every category of silver fabrication declined last year with the greatest falls in photography and coin minting.
World investment in silver rose by only 0.08% to 252.7 million ounces in 2012, “which enabled investor activity to remain the dominant drive of silver prices last year,” said the report. Silver investment accounted for almost a quarter of total silver demand.
At the same time, however, purchases of coins & medals dropped by 22% or 25.6 million ounces from the record level seen in 2011. Physical bullion bar demand was almost halved from 110.6 million ounces in 2011 to only 53 million ounces last year. “The drop was overwhelmingly the result of lower Indian demand, although losses were seen in several other key markets,” said the report. “The main exception here was China, which enjoyed double-digit percentage growth, enabling the global total to remain at still historically elevated levels.”
Meanwhile, Thomson Reuters GFMS observed that “particularly robust demand for physical silver bullion” occurred earlier this year, “a sharp contrast to the futures market which has experienced some heavy liquidation from mid-February onwards.” Silver futures on the Comex fell by nearly a third last year, while other exchanges experienced as much as a 68% decline in silver futures.
Silver ETF demand rebounded strongly during 2012, with a net demand of 55.1 million ounces for a global total of 631.4 million silver ounces last year, up from 576.2 million ounces in 2011. Investor activity “was heavily influenced by macroeconomic development in several key countries and, more importantly, their potential impacts on central banks’ monetary policy decision,” said Thomson Reuters GFMS.
For more information about The Silver Institute World Silver Survey 2013, go to www.silverinstitute.org
iPad Version – Picture: Silver bars are displayed at the Austrian Gold and Silver Separating Plant ‘Oegussa’ in Vienna: REUTERS/Lisi Niesner