Facts ‘N’ Figures: Investors Sought Silver Lining Last Year

The silver price, led by growing investor demand, averaged a remarkable US$11.55 per oz. in 2006. At the same time, industrial demand for silver saw a fifth consecutive year of growth, despite the higher silver price, according to World Silver Survey 2007, published recently by the Washington, D.C.-based Silver Institute and London’s GFMS, authors of the report.

Silver price and investment

Last year, the silver price experienced a 58% increase over the average 2005 price of US$7.31 per oz. In 2006, the silver price reached levels not seen in 26 years and was the leader when compared with gold, which underwent a 36% increase, and platinum, 27%.

The primary factor driving the stronger silver price was the continued strength of investment demand, which returned in earnest in 2005, was sustained in 2006 and has remained resilient in 2007. Much of the investment demand last year can be attributed to the successful launch of Barclays’ Global Investors iShares Silver Trust Exchange Traded Fund (ETF), which was introduced in late April 2006 and now holds more than 135 million oz. silver.

Fabrication Demand

Total global silver fabrication dipped by a little under 1% in 2006 to 840.5 million oz., despite a trend toward significantly higher and more volatile silver prices. Most notably, industrial applications, a key component of the demand complex, posted a 6% gain to 430 million oz., recording a fifth consecutive year of growth. China posted strong industrial demand growth at 10.4%, and Japan recorded an equally impressive 10% increase in 2006. Last year represented a record for the United States with respect to total industrial silver use, posting a 6% increase to 106.8 million oz. Total industrial demand exceeded 50% of total global fabrication demand for the first time in 2006.

Jewelry fabrication posted a loss of almost 5% in 2006, largely due to price-related losses in India. Indonesian and Chinese jewelry fabrication, however, grew by an impressive 18% and 16%, respectively.

Lower fabrication in price sensitive countries and structural taste shifts accounted for the 7.5-million-oz. dip in global silverware demand in 2006. About 60% of the silverware decline was due to India, where the price rise was evident in rupee terms.

Photographic demand continued to fall, decreasing by 10% in 2006 to 145.8 million oz. The bulk of the decline was the result of lower consumer film demand due to growth of digital imaging technology.

Mine supply, above-ground stocks, cash costs and government sales

Global silver mine production edged up fractionally in 2006, with notable gains in Latin America and Asia.

Total silver mine production reached 646.1 million oz. last year, with Peru, Mexico, China, Australia and Chile the top five silver-mining countries. Last year, silver generated at primary mines fell by 10% to 161.4 million oz., representing 25% of global silver production. Cash costs at primary silver mines contracted last year by 16% to average US$2.74 per oz.

The supply of silver from above-ground stocks on a net basis dropped by 4% in 2006 to 194.4 million oz. The decline was the result of a shift of net producer hedging to the demand side. Total scrap supply provided the market with 188 million oz. silver in 2006, virtually unchanged from 2005.

Net government sales crept up to 77.7 million oz. in 2006. The increase in government sales in 2006 was the result of marked increases in Russian sales, coupled with ongoing sales from Indian government silver stocks. Elsewhere, a decline in sales from China partly offset these increases.

The Silver Institute has published the World Silver Survey since 1990, as part of an effort to bring reliable supply and demand statistics to the public.

The survey was sponsored by 23 companies and organizations from North and South America, Europe, Australia and Asia. These firms are involved in most aspects of the global silver industry, from mining and refining to trading and manufacturing.

Founded in 1971, the Silver Institute is an international industry association.

World Silver Supply and Demand (million ounces)

(Totals may not add due to rounding)

Source: Silver Institute