According to the recently released Silver Institute 2015 Interim Report,
the world experienced annual silver net deficits for 12 years running. This
is surprising as the Silver Institute actually reported a small net surplus
of silver in 2014. However, the small silver surplus turned
into a deficit when 2014 mine supply and total demand figures were revised.
If we look at the chart below (using last year’s data), annual silver
deficits were reported until 2013 and then turned into a surplus in 2014:
This was Chart #48 from THE
SILVER CHART REPORT, released earlier this year. Going
by this data, the world suffered a cumulative net deficit of 930 million oz
(Moz) for the past decade (2005-2014). The annual net balance figure is
calculated using data from Thomson Reuters GFMS provided for the Silver
Institute.
The annual net balance figure is comprised by first subtracting total physical
demand from total supply. This is their “Physical Surplus or Deficit
figure.” They then take this physical surplus or deficit figure and add
or subtract net changes in Silver ETFs and Exchange Inventories. The
end result is a “Net Balance.” Basically, the annual net silver balance
also takes into account the build or decline of Silver ETFs and Exchange
inventories.
Even though Thomson Reuters GFMS reported a small silver surplus in 2014,
I knew it was going to be revised lower to a deficit. Why?
Because my analysis showed that they overestimated mine supply and
underestimated physical investment demand.
For example, Thomson Reuters GFMS reported 2014 Mexican silver production
of 193 million oz (Moz) at the Silver Institute, whereas my figures (taken
directly from Mexico INEGI) shown in Chart #8 in THE
SILVER CHART REPORT, list actual production at 184.2
Moz. Mexico INEGI’s just revised their 2014 silver production figure to
185.3 Moz.
World Suffers Consecutive Net Deficits For 12 Years Running
If we take the data from the Silver Institute’s 2015 Interim Report and
2014 World Silver Survey, the world experienced consecutive silver
deficits for the past 12 years:
NOTE: The 2015 figure should read 2015 Est.
(estimated). Actually, I believe the 2015 net deficit of 21.3 Moz will
be even higher when they revise the data next year. I will get into
more detail on this in following articles, but I believe estimated 2015
Silver Bar & Coin demand was under reported by a large percentage.
That being said, the 2014 small net surplus of 2.6 Moz turned into a
deficit of 21.3 Moz due to global silver mine supply being revised lower by
12 Moz to 865 Moz from 877 Moz reported last year, while total Silver Bar
& Coin demand was revised higher to 203.5 Moz versus 196 Moz stated last
year. These two revisions accounted for the majority of the net -23.9
Moz change.
Adding up all the annual deficits from the period 2004-2015, the
world suffered a cumulative shortfall of more than a billion ounces of
silver… 1,021 Moz to be exact. That’s a lot of silver.
So, where did it all come from and does it really matter?
When Do The Silver Fundamentals Matter?
This is the question an increasing number of precious metal investors are
asking themselves. I know this first hand as this is the question I get
emailed the most from my readers. Unfortunately, the fundamentals don’t
provide the EXACT TIME when the fundamentals matter, but rather present data
about the ongoing TREND that offers us a some important CLUES.
Here is an excerpt from the Silver Institute 2015 Interim Report on the
subject of physical deficits:
The silver market is expected to be in an annual physical deficit of 42.7
Moz in 2015, marking the third consecutive year the market has realized an
annual physical shortfall. 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. This
year, however, net outflows from ETF holdings and derivatives exchange
inventories on a year-to-date basis have lessened the impact of the physical
deficit, bringing the net balance to ‑21.3 Moz.
Remember, the estimated physical silver deficit of 42.7 Moz in 2015 does
not factor in the net change of Silver ETFs and Exchange Inventories… which
was a net decline of 21.4 Moz (as of Sept 2015).
Regardless, the important item to focus on in the quote above is the
statement, “multiple years of annual deficits can begin to apply upward
pressure to prices in subsequent periods.” What is interesting
here (not discussed in the Interim Report) is that net silver deficits have
been now going on for 12 consecutive years when we also include builds in
Silver ETFs and Exchange Inventories.
We must remember, the large build in Global Silver ETF inventories
(2006-2010) had to come from physical silver supplied by the market.
According to the Silver Institute, the total cumulative build in Global
Silver ETFs was 569 Moz for the five-year period….. 2006-2010.
So, where did all this silver come from to supply a 1+ billion oz
shortfall over the past 12 years? That is the trillion dollar
question. I believe this billion oz shortfall was supplemented from a
source known as “Unreported Above-ground Stocks.” While this figure is
nothing more than a good guess by various official sources, it has fallen
precipitously since the 1990’s.
The CPM Group stated that “Implied Unreported Silver Stocks”
reached a peak of 2.2 billion oz (approximate figure) in 1990 and fell
to less than 200 Moz in 2014. This draw-down of unreported
above-ground stocks supplemented both the annual physical supply deficits and
builds in Global Silver ETFs over the past 35 years.
While it’s impossible to know how much remaining silver (from unreported
above-ground stocks) can be used to supplement ongoing annual deficits going
forward, there’s probably a lot less than we realize. Furthermore, the
segment of the silver investment market that was impacted the most during
rapid 60% fall in the silver price was Global Silver ETFs.
As I stated above, from 2006-2010, the net build of Global Silver ETFs
were 569 Moz. However, from 2011-2015, the net increase in Global
Silver ETFs were a paltry 18.2 Moz. What happened if the price of
silver continued to rise 2012-2015? Main Stream investors would have
piled into the Silver ETFs pushing up their total global inventories. RisingGlobal
Silver ETF inventories on top of rising physical Silver Bar & Coin demand
would have put a real strain on remaining “Unreported Above-Ground Stocks.”
Even though precious metal sentiment is now probably at all time lows,
investors need to realize NOTHING HAS BEEN FIXED in the Global Financial
Markets. Yes, it’s true that the propping up of the markets by the Fed
and Central Banks has gone on longer than we realized, the unraveling of the
World’s Greatest Financial Ponzi Scheme is still on its way.
