EDITORIAL & OPINION — FACTS ‘N’ FIGURES — Silver shines in 1998

Although economic conditions in 1998 adversely affected other commodities, silver showed resilience through a turbulent year, posting its best price performance in 11 years. Its strength was largely the result of steady industrial and investment demand.

Silver demand, which declined a modest 2% in 1998, was affected by several factors last year, most notably higher prices. Also, the strength of the U.S. dollar meant that silver prices in other currencies were high, boosting the supply of scrap available to the market. Contributing to the decline were the economic crisis in East Asia and poor harvests in India. However, for the tenth consecutive year, the market continued to have a structural deficit, with fabrication demand exceeding supply from mine production and the recycling of scrap. This shortfall eroded, by nearly 105 million oz., above-ground stocks of silver in bullion and coin form.

After three years of growth, world fabrication demand fell by 2.2% in 1998 to 840.6 million oz. The decline was primarily the result of a sharp decline in East Asian and Indian demand — 13% and 16%, respectively, or 46 million oz. in total. By contrast, North America and European fabrication demand were both up 9%. North American demand rose to 214.4 million oz., with the U.S. consuming 188.8 million oz. of that total. The U.S. was the largest user of the metal, followed by Japan at 112.8 million oz., and India at 104.3 million oz. Close to 70% of the metal was consumed in industrial applications and photography last year.

The largest end-use for silver was industrial applications, which accounted for 323.7 million oz. in various applications, including electronics, medicine and electroplating. North American and European industrial demand increased by 8% and 3% respectively, while Japanese and Indian demand fell by 11% and 10%.

Photographic demand for silver surged 5.6% to more than 245 million oz., based on growth in the U.S., which accounted for 36% of world demand.

As a result of steep declines in Indian and East Asian demand last year, jewelry and silverware fabrication fell sharply to 244.4 million oz., down 11%.

Total supply of silver to the market declined by 2% in 1998, despite gains in the three main sources of supply: mine production, scrap and official sector sales. Those gains were offset by a large drop in producer hedging and lower divestment in 1997. Overall, mine production represented 65% of total supply, scrap contributed 22%, and official sector sales, 6%. The balance came from private-sector stocks.

Silver mine production increased for the fourth consecutive year, up 5%, reaching a record level of 545.5 million oz. Mexico was again the largest producer, contributing 92.5 million oz., 17% of world output. Production from South and Central America was up 7%, primarily due to growth in Chile. Peru, the second-largest producer, mined 65.1 million oz., down 1.7% from 1997.

In the U.S., primary mines contributed more than half of the country’s total production last year, though production fell slightly to 62.8 million oz. from 63.2 million oz. in 1997. Canada produced 36.2 million oz. in 1998, all as byproduct. European production was up 3% from 1997, to 58.3 million oz.

— The preceding appeared in World Silver Survey 1999, an annual publication of the Washington, D.C.-based Silver Institute.