Industrial Silver Demand "Slowing" But "Positive News" for 2015

Silver demand could "establish bullish case" on 2015 growth forecasts...

 

SILVER DEMAND from key industrial sources is showing signs of slowing, according to a new report, but 2015 forecasts for particular sectors could help the metal form "a bullish case" if underlying demand strengthens again, other analysts believe. 

 

"After a robust start to [this] year," says the latest Precious Metals Weekly from London-headquartered consultancy Metals Focus, "growth in silver industrial offtake may have recently lost some momentum."

 

Most notably, global shipments of silver powders – "a key starting point for a variety of applications, especially in the electrical and electronics sector" – have retreated, but continue to show year-on-year growth from 2013.

 

With some two-thirds of physical silver demand coming from industry worldwide – rather than from investment, jewelry or silverware – what Metals Focus calls "increasing concerns about a slowdown in the global economy" have been driving silver's recent underperformance against gold, it believes.

 

Last month the Gold/Silver Ratio – a simple measure of the two metals' relative value, figured by dividing the ounce price of gold by the ounce price of silver – hit a 5-year high near 75 as the white metal fell faster than gold.

 

"Unfortunately for silver," says a separate note from Japanese trading house Mitsui, "it seems to have established its industrial credentials at just the wrong time," losing ground to gold amongst investors because the yellow metal "retains something of its safe haven status."

 

"Silver fundamentals don't justify higher prices," agreed analysis from Australia's Macquarie Bank recently, predicting stable prices over to the end of 2014 and first quarter of 2015, but with demand weak and outstanding inventories high.

 

Finding more "positive news" in silver's industrial outlook however, "There are some signs of strengthening underlying demand," Mitsui goes on, pointing to 2015 forecasts of solid growth in key demand sectors such ethylene oxide production (projected 8%) and electronics (projected 6%).

 

While Mitsui doesn't expect these sectors "to drive higher prices in the short or medium term, they could start to provide support for the silver price and begin to establish a bullish case" further ahead.

 

But amongst investors, one formerly growing source of demand – Indian households – is likely to slow however according to Jonathan Butler at Japanese conglomerate and auto-maker Mitsubishi. Because after 18 months when "some consumers who would ordinarily have bought gold have bought silver ('poor man's gold') [thanks to] soaring gold premiums due to import restrictions," the Indian government has now removed one key anti-gold measure.

 

"Greater availability of gold now the 80:20 rule has been dropped," says Butler, "may impact silver demand negatively in the short term."