Record Silver Mining Output 'Negated' by 2014 Drop in Scrap

Friday, 11/21/2014 16:55

Silver mine production set to hit a record high, but lower prices mean less recycled supply...

SILVER MINING PRODUCTION worldwide is set to reach an all-time high in 2014, according to new analysis from the market's leading data consultancy.

This week's Interim Silver Market Review from GFMS – a division of the Thomson Reuters newswire and data agency – says silver mining output will rise 3.5% this calendar year from 2013.

However, due to this year's steep fall in prices, the silver market is also seeing a continued decline in 'scrap' flows from sales of existing above-ground holdings. So the total increase in supply to the market expected to increase by only 2.9% year-on-year.

Increased mining supply is coming particularly from South and Central American countries such as Guatemala, Mexico, Chile and Peru, explained Andrew Leyland, manager of GFMS Precious Metals Demand research, at the Annual Silver Industry Dinner hosted by the Silver Institute this week in New York.

Full year 2014 mining supply is expected to total 868 million ounces (27,000 tonnes), a rise of 35% from 10 years ago.

Balancing that, total physical silver demand will probably fall some 6.7% in 2014 says GFMS. Led by the slow pace of purchases by many silver-consuming sectors in the first half of the year, demand is seen dropping to 1,005 million Troy ounces (31,258 tonnes) from 2013's record high of 1,077 moz (33,498 tonnes).

"In Europe a harmonization of sales tax rates in January 2014 saw silver become significantly more expensive for retail investors," explains the GFMS team, "and led to lower sales until the recent price declines."

Already averaging $19 per ounce in 2014-to-date, silver prices are set to average that level by end-December as well, GFMS believes, with spot prices little changed by New Year.

Silver prices have significantly decreased in the last four months, touching new 5-year lows on 7th November at $15.07 per ounce.

"Elsewhere modest declines [in demand] have been seen in industrial (-1.8%), jewelry (-4.4%) and silverware (-6.3%) markets," GFMS new report goes on, because "thrifting away from silver remains an ongoing process" as manufacturers try to cut costs by using ever-lower quantities of the precious metal.

Outpacing even the growth in silver mining output over the last decade, however, the demand for silver bars and coins has soared again in late 2014, as investors returned to bargain-hunting at these new lower prices.

Global demand for gold bars and coins, estimated at 192 million ounces in 2014, has risen three-fold since 2005 according to the new report.

The volume of silver imported to India has reached a new annual record, with inflows exceeding last year by 14% over the first ten months of the year on GFMS's data.

By Steffen Grosshauser