After a decade of increasing silver mining production that reached its peak in 2015, the amount of silver flowing from primary and secondary silver miners is projected to fall this year. Earlier this week, investment Bank Société Générale projected that silver mining output will fall 9.2% in 2016 from 2015 levels and fall 13% in 2017 from 2015 levels. Last fall, the Silver Institute projected a 5% decline in 2016 silver mining production.
According to the Silver Institute, the silver supply/demand dynamic has been in deficit for many years with demand exceeding supply. With a fall in silver mining production expected in 2016 and continued robust silver demand, the Silver Institute projects another deficit in 2016 and notes “while such deficits do not necessarily influence prices in the near term, multiple years of annual deficits can begin to apply upward pressure to prices in subsequent periods.”
About 85% of total annual silver supply comes from mining with the remaining supply coming from recycled silver or “scrap” silver like old silverware, silver bars and coins. When the price of silver is low, less silver comes to market.
Unlike gold which is a primarily a monetary and ornamental metal, silver is primarily an industrial metal with demand coming from the electronics, solar and medical device industries.
Over the past decade silver investment demand has grown over 400 percent from under 50 million ounces a year in 2006 to well over 200 million ounces in 2015. The rising investment demand has offset minor declines in industrial silver demand.
Because silver industrial demand is not a discretionary purchase or one that can be satisfied with financial instruments, physical supply of silver is critical. Since there are no known stockpiles of silver, other than silver held in silver ETFs and other financial instruments, industry’s silver needs must be supplied almost exclusively from mining production.
View Gold & Silver Price Charts; Receive Gold & Silver Price Alerts
Secondary Silver Miners
About two thirds of mined silver comes as a by-product of the mining of base metals like zinc, lead and copper. Due to the global economic slowdown, demand for base metals has curbed demand. As a result, base metal miners have cut output. With reduced lead, zinc and copper output, silver production is also reduced. Copenhagen based Saxo Bank A/S believes that base metal mining cut backs will continue this year.
Primary Silver Miners
About a third of silver mined comes directly from silver mines. The price of silver has plummeted from $50 an ounce in 2011 to the mid to high teens in recent years. Unlike falling demand for base metals, demand for silver has increased during the period of declining silver prices. Primary silver miners have responded by increasing production, many of them to record levels in 2015, in order to meet demand and to stay in business as the lower price of silver meant they had to mine and sell more silver to meet their operating expenses.
While some primary silver miners have projected that they will continue to maintain or increase productions in 2016, others have indicated that the low silver prices will cause them to shut down unprofitable mines.
Overall, even if primary silver miners can maintain current levels of silver production, the drop off in base metal mining is projected to result in a decline in silver mining production of almost ten percent in 2016.
Investment demand continues to be strong in 2016, with the U.S. Mint selling more silver in the first quarter of 2016 than in the first quarter of 2015, which was a record year. In 2015, the U.S. Mint sold 47 million ounces of silver, compared to 8.4 million in 2005.
This article does not necessarily reflect the explicit views of BGASC, nor should it be construed as financial advice.