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GFMS produced
the report for the Silver Institute published last week. We have used this as a basis for
this article on silver supply and demand in the last three years. Our objective in this piece is to have
recent history confirm what we expect of the future for silver.
Industrial
demand
The first
fact that jumps off the page is that the future for silver looks remarkable
with industrial silver demand rising from 15,160.19 tonnes [487.4 million ounces]
in 2010 to 20,712.29 tonnes [665.9 million ounces] in 2015.
Much of the
growth in the global total of industrial silver consumption will be driven by
stronger demand for a number of established uses including the manufacture of
electrical contacts and the use of silver in the photo voltaic
industry. New uses
center on silver's antibacterial qualities, while other new uses tend to make
use of its conductive properties, including solid state lighting and Radio Frequency
Identification (RFID) tags.
Overall please note that silver’s importance in the technology
of the day is huge. We go
so far as to say that the demand from silver has transformed from a want to a
need! Whether we are in a
boom or bust silver’s demand will remain robust. It is now needed to make all
facets of an economy run well and at all levels, even down to individual
needs. This secures its
future and assures us that silver prices are well supported. Here is the list of the amounts used
in different applications that emphasize this point.
- Cell phones used 404.35 tonnes [13 million ounces] of silver last year.
- Computers
consumed 684.29 tonnes [22 million ounces].
- Thick film PV
consumed 1,461.90 tonnes [47 million ounces] in
2010.
- Automobiles
which used 1,119.75 tonnes [36 million ounces] of
silver.
- Electrical
and electronics demand for silver reached an all-time high of 7,555.21 tonnes [242.9 million ounces].
- Solar Power
in 2011 is expected to reach 2,177.29 tonnes [70
million ounces], up 40%.
- RFID tags in
2010 reached between 31 and 62 tonnes with a long
way to go before reaching full market.
- Water
purification used 62 tonnes [2 million ounces] set
to grow to 74.65 tonnes [2.4 million ounces].
- Medical
applications may grow strongly to reach 93.3 tonnes
[3 million ounces] by 2015.
- The use of nano-silver in goods packaging and hygiene combined would
consume 124.4 tonnes [4 million ounces] of silver
over the next five years.
Silver is
consumed
While
photographic use of silver allows for the re-cycling of silver, reclamation
of silver from most of the above uses is difficult to
nigh-on-impossible. This in
itself assures either a constant or rising demand for these
applications.
Of
particular note is the growth in Asia where we are watching around half of
the globe’s population developing at infrastructural level as never
before. This growth will
continue at double figures, per annum for at least the next decade.
Gold
is rarely consumed as it is deemed far too valuable. Reclamation efforts relative to
the value of the gold ensures that scrap merchants will go to extraordinary
lengths to recover the gold.
In silver’s case these efforts would cost more than the sale of
the silver so used. As the
silver price rises further reclamation efforts will become profitable and
more silver will be recovered, but we are still a long way off from that day.
Investment
demand
HSBC,
the world’s largest bullion dealer [in both gold and silver] is
confirming that silver’s role as a monetary metal is gathering the most
momentum, particularly in emerging economies. They say that the macro economic
trends from emerging markets are positive for both gold and
silver. They put the growing Chinese middle classes [now
well over 400 million people of the 1.3 billion Chinese citizens] as fueling
an “explosive” growth in demand for silver as a hedge against
fast rising inflation. The
Industrial and Commercial Bank of China, the world’s largest bank by
market value, agrees this.
I.C.B.C. sold 13 tonnes [418,000 ounces] of
physical silver to Chinese citizens in January, alone, compared with 32.97 tonnes [1.06 million ounces] for the whole of 2010.
We
have seen China turn from an exporter of silver to a huge importer in the
last three years. And
that’s just the start!
China was a net importer of over 3,110.42 tonnes
[100 million ounces] of silver last year, whereas while it was selling
‘official’ holdings of silver only a few years ago it was
exporting an equal amount annually.
China’s
ravenous new demand for silver as a store of value in inflationary times is
growing exponentially. This is illustrated by the fact that silver imports
last year increased four-fold over 2009.
 
Supply
While
we don’t yet have the numbers for supply of silver in 2010 we do not
expect them to have risen more than 10% over 2009 levels [in the Table
above]. Once we have these we
will pass the information onto you.
With
70% of silver mined as a by-product of base metal mining there is a danger of
demand outstripping supply.
The present sources of by-product silver are operating at peak
capacity. Pure silver producers
like Silver Wheaton are growing but unlikely to be able to fill the gap. Mines like Coeur d’Alene
which is becoming a 50% gold and 50% silver producer do have a considerable
capacity for growth and will do so. But again with demand burgeoning
on both the investment and industrial sides supply will find it difficult to
meet demand.
Another
difficulty for supply is that they are inflexible because of their dependence
on mining. We do foresee
rising scrap sales from the developed world where the sight of a profit on
jewelry etc, can prove too tempting to the individual, but we cannot see this
being more than 10 to 20% more than in 2009. In the emerging world such a
concept is basically foreign to them because both silver and gold represent
financial security to investors there.
If
the developed world were stable and if the emerging world was used to their
newfound wealth, and were their history not as close to social rupture as it
has been and could be, emerging market investors would probably not trust
gold and silver as much as they do now. But that is the case now. We believe [if history is to
guide us] that it will take at least another generation [25 years] of wealth
and stability in the emerging world for this attitude to change. Until then scrap supplies from
the emerging world will remain at extremely low levels.
Prospects
for the Silver Price
In 2011 we
are seeing prices far above those imagined three or four years ago. But then the world is facing far
more uncertainty and instability that was ever imagined then too. The decay of currencies ability
to measure value has been increasing over that time too, making the soaring
prices of silver and gold to become more than plausible. Indeed a strange feature of the
silver price has been it moves with gold as though tied with a piece of
elastic string to the gold price, rising higher and falling lower at each
move. So why does it not
move more like copper or another base metal used as a simple commodity? And where, if it doesn’t
move like them, is it headed?
Julian D. W. Phillips
Gold/Silver
Forecaster – Global Watch
GoldForecaster.com
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