The following is an edited summary from the Silver Institute, based on findings in its World Silver Survey 2016. For more information visit www.silverinstitute.org.
The silver market saw record demand in 2015, with the jewellery, coin and bar, and photovoltaic sectors posting new highs, helping to boost total silver demand to 1.2 billion oz. last year.
Overall silver supply to the market was lower, led by the continued weakness in silver scrap sales.
Last year’s supply and demand scenario led to the third successive annual silver market deficit, reaching 129.8 million oz., which is more than 60% larger than 2014, and the third largest on record.
Silver demand
Globally, silver jewellery fabrication increased for the third consecutive year to post a fresh high at 226.5 million oz. This increase was largely achieved on the back of an impressive 16% rise from both India and Thailand, while North America posted a 5% annual increase. These gains were partly offset by a sizable contraction in Chinese jewellery off-take.
Total silverware fabrication enjoyed its third successive annual rise to an estimated 62.9 million oz. — a 10-year high.
The largest component of physical silver demand — industrial applications, which accounted for 50% of total physical silver demand last year — was 4% lower, totalling 588.7 million oz. This drop was largely due to weaker fabrication demand in developing countries and a stagnant global economy.
On a regional basis, modest increases in industrial demand were posted in the U.S. and Japan, which are the second and third largest sources of industrial demand. Electrical and electronics use declined 10% last year to 246.7 million oz., due to slower economic growth in developing countries and the continued weakness in computer sales.
There were several highlights within the industrial segment. Silver demand for photovoltaic applications rose 23% in 2015 to 77.6 million oz., marking the second straight year of increases in this sector, driven by strong growth in Chinese solar panel installations. Silver demand for ethylene oxide (EO) grew 103% to 10.2 million oz. GFMS estimates that 137.5 million oz. silver resided in EO plants around the world at year-end 2015, equivalent to 16% of last year’s silver mine production.
Silver’s use in brazing alloys and solders fell 5 million oz., and photography demand slid 4% last year.
The pace of decline in photography slowed considerably to its lowest rate since 2004, as digital technology in the photography industry approaches maturity.
Silver Investment and Price
Identifiable investment, which includes physical bar investment, coins and medals, and exchange traded product (ETP) build, climbed 16% to a near-record high in 2015.
Silver coin and bar investment surged 24% to reach 292.3 million oz., the highest annual demand level in GFMS’ records, overtaking the previous high in 2013. Coin and bar demand accounted for 25% of total physical demand in 2015, the highest market share on record and up from just 5% a decade earlier.
Silver coin and medal demand amounted to 134.1 million oz. of demand last year due to unprecedented growth in several key markets, notably the U.S. and India.
Holdings in silver-backed ETPs declined 17.7 million oz. in 2015, finishing the year at 617.8 million oz. However, demand in this investment category has rebounded with ETPs reaching 640 million oz. at the end of the first quarter 2016.
An extremely challenging year for nearly all commodities, along with a continued slowdown in Chinese economic growth and a stronger U.S. dollar, led to a lower average annual silver price of US$15.68 per oz. in 2015.
However, this lower price environment helped to boost physical demand, particularly as long-term investors viewed lower prices as key entry points in expectation of future price appreciation.
Silver Supply
Global silver mine production growth slowed to 2% in 2015 and reached a record 886.7 million oz. silver. The mine production growth was attributable to stronger output in Peru, Argentina, Russia and India, while Canada, Australia and China had lower mine production, with the latter decreasing output 3%.
Primary silver mine production grew 5%, and accounted for 30% of global silver mine supply. The overall slowdown in mine production last year is expected to continue.
Primary silver co-product cash costs plus capex fell 11% to US$11.74 per oz. silver. This drop was driven by weaker local currencies, aggressively lower capex and lower fuel prices.
The producer silver hedge book grew 7.8 million oz. in 2015, as fresh hedging more than offset maturing contracts.
Scrap supply was down 13% at 146.1 million oz., the lowest volume level recorded since 1992, and the fourth consecutive year of decline. Behind the decline were fewer collectors active in the market and some holding back material awaiting higher prices.
Government sales of silver were again essentially nonexistent.
Why the reference to an old Nick Diaz vs Diego Sanchez MMA fight in the second paragraph, under Silver Demand?
Way to catch that obscure reference, Barry. Our copy editor Isa and I train in kickboxing down the street at lunch and are big Diaz brothers fans, and she collects their quotes, and pasted that in by mistake!