At the Annual Silver Industry Dinner organized by the Silver Institute, Andrew Leyland, Manager, Precious Metals Demand in the GFMS team at Thomson Reuters, presented the Interim Silver Market Review. This Review included Thomson Reuters’ provisional supply and demand forecasts for 2014. The following details some of the highlights from the report.
• With major equity indices in the US near all-time highs, and expectations for higher interest rates during 2015, exchange traded fund (ETF) holdings of silver have remained remarkably robust at a time when some are questioning the rationale for holding non-yielding assets. Having peaked at 660 million ounces (Moz) in late September 2014 they remained at 650 Moz by mid-November, a year-to- date increase of 17 Moz or 3%. In comparison, at 1,682 tonnes, gold ETF holdings are over 1,000 tonnes lower than their peak level, and have fallen by another 129 tonnes, or 8%, year-to-date.
• On the COMEX Exchange, open interest in silver also remains at record levels with the metal remaining a popular instrument for institutional investors. The Managed Money net position, a proxy for speculative interest, shows both historically high long and short positions. On a net basis these have remained negative for the past nine weeks, however the total short position has fallen back from a peak in late October, and there remains potential for a short-covering rally into the new year.
• Meanwhile demand for silver bars and coins has soared in recent weeks as bargain hunting retail investors returned to the silver market after a disappointing first half of the year. Nowhere is this more evident than in India where imports of silver are up by 14% year-on-year for the January to October period and set for an annual record. With imports in the first ten months totalling a massive 169 Moz many vaults in the UK, traditionally the largest supplier to India, have seen significant drawdowns, leading to more supply flowing from China and Russia.
• On the supply side, mine production is forecast to reach all-time highs in the silver industry in 2014 as supply from Guatemala, Mexico, Chile and Peru increases. This is forecast to see primary supply increase by 3.5% in 2014 to 868 Moz. Total supply to the market is expected to increase more modestly as scrap supply continues to contract, with an estimated 14% decline in scrap leading to total supply of 1,131 Moz, a 2.9% increase year-on-year.
• Total physical demand for silver is forecast to be 6.7% lower in 2014 after a weak first half for many sectors. In Europe a harmonisation of sales tax rates in January 2014 saw silver become significantly more expensive for retail investors and led to lower sales until the recent price declines. Elsewhere modest declines have been seen in industrial (-1.8%), jewellery (-4.4%) and silverware (-6.3%) markets as thrifting away from silver remains an ongoing process in electronics and some retailers pushed gold jewellery products this year in order to take advantage of lower prices.
• Average silver prices year-to-date have fallen by almost 20% with the LBMA Silver Price reaching a multi-year low on November 6th of $15.28/oz before rebounding slightly. For the full year prices are forecast by Thomson Reuters to average $19/oz, a 20.1% decline from 2013’s average of $23.79/oz.
Courtesy Commodites Now (EconMatters author archive here) The views and opinions expressed herein are the author's own, and do not necessarily reflect those of EconMatters.