The charts in this article come from CPM Group’s 2018 Silver Yearbook and point to a silver trend that is:
- so entrenched in its development,
- so inevitable in its outcome,
- so inescapable in its consequences
that it comes as close as one can get to a guarantee and, once fully underway, it will have major implications for the silver price, along with the availability of investment metal.
The original article has been edited here for length (…) and clarity ([ ])
Let’s jump in, starting with the demand side.
Investment Demand For Silver Is Up
Silver demand is down…Yes, coin and bar sales fell 52% last year, ending up at approximately the same level as 2007 but demand for ETPs (exchange-traded products, including ETFs) remained near all-time highs, as the data shows.
SLV and other silver paper vehicles saw virtually no drop in holdings last year, in spite of a weak silver price and falling physical demand…and, as CPM notes, “There are various political and economic risks at present which could easily derail economic growth. This makes the lack of investment demand in silver now an even more grave concern, relative to the 1980s. Should investors increase their net buying once more, as CPM’s main long-term projections for silver suggest, prices would be expected to rise beyond 2018.”
Demand For Fabricated Silver Is Up
We certainly agree that investment demand will increase in the coming monetary regime change, but that’s only one piece of the demand pie – demand for fabricated silver isn’t letting up.
Fabricated product refers to anything a refiner forms from raw silver into a usable application or commercial product so it includes almost all forms of silver, from medical applications and solar paste to jewelry, silverware, coins and bars.
Total fabrication demand is up 15% just since 2012, back near all-time highs.
Solar Power Demand For Silver Is UP
One of the biggest growth areas for silver demand has been photovoltaic use. Analysts predicted that solar power demand would fall last year. They were wrong.
Demand for solar-panel-use silver rose a whopping 23.1% in 2017…and CPM reports “The use of silver in solar photovoltaic panels continued to grow rapidly, at rates that exceeded even the most optimistic projections… Given the strong emphasis being placed on solar power by China and other governments as a means to fight pollution and global warming, it seems more likely that 2018 will once more see strong growth in solar panel use of silver.”
Chinese Demand For Silver Is Up
You can’t talk about precious metals without looking at China. Most recent reports cite “softening” silver demand there, but again that’s not what the data says. Year after year the appetite for fabricated silver products in the world’s largest economy continues to grow stronger.
Since just 2015, fabrication demand in China is up 22%. You can see there’s been no “down” year in silver demand since the turn of the century. That won’t change anytime soon.
Now let’s look at the supply side of the equation.
Scrap Silver Supply Is Down
Silver scrap is primarily comprised of recycled metal from jewelry and electronics. It is often overlooked by investors, but it amounts to roughly a fifth of all supply sources and it’s not helping matters.
Recycled scrap metal supply has fallen a stunning 41% from its 2012 peak. Yes, it will rise again when the price does, but that rise will have to be both substantial and sustainable before it’ll help overall supply in any meaningful way.
Meanwhile, some reports claim that high silver prices will reduce overall industrial demand. As silver gets more expensive, industrial users will switch to other metals but that depends on how easy it is to transition to cheaper sources, and the degree to which those sources function as conductors as well as silver does. There is no easy and obvious conversion option with CPM reporting “The increase in demand for electronics going forward is not likely to be limited easily. While there are substitutes that can end this discussion, the reality is that silver is a very good conductor of electricity and is fairly low cost for the efficiency it brings to the table. For this reason demand for silver is not likely to be substituted in electronics.”
Perhaps the most compelling data of all when it comes to supply can be seen in this simple list of facts. As the Silver Yearbook outlines…
- Total supply peaked at 1.01 billion ounces in 2014, and has been in a declining trend since.
- Total market economy mine supply declined to 775.4 million ounces in 2017, down 26.5 million ounces, or 3.3%, from 2016 levels.
- Last year was the first year that mine supply joined scrap supply in driving total supply lower…
The CPM says “The decline in mine supply since 2016… is expected to continue over the next decade… There is a broad set of problems that are negatively influencing global silver mine supply, which include an absence of a healthy pipeline of new projects, declining ore grades at both primary silver mines, and gold and base metals mines that produce silver as a byproduct, and depleting reserves.”
It is no longer a “prediction” that fewer ounces of silver will be dug up by the mining industry. It’s already happening – and it will continue for the next decade.
Mine Supply Of Silver Is Down
Mine supply is in a decade-long decline. Fabrication demand is rising globally. These facts are irrefutable…
Supply and demand trends are clearly poised to continue tightening the silver market and when the next crisis hits…the silver price will be significantly impacted by this trend. It may not happen this year, but the 20,000-foot view of this market says a crunch is on the way. It’s supply/demand 101…
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Coming off two successive positive years, gold seems to be building toward something. Fizzling or dropping seems unlikely given 2017’s surprise performance and the general state of global equity markets – most of which seem to be overpriced, over-loved and over the top. 2017 will be recorded as a transition year for gold; 2018, in my opinion, will go down as the year gold reasserted itself as a primal force in the global financial marketplace.
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