METALS COMMENTARY — Metals analyst provides little joy for silver buffs

Silver prices are not expected to improve over the short term, according to metals analyst Richard Hajdukiewicz, vice-president of commodities for J. Aron & Co, the commodities division of the investment banking firm of Goldman Sachs.

The metal currently trades at about US$5.54 per oz. and, considering fundamental supply and demand factors, is expected to range between US$5 and US$6 per oz. this year, Hajdukiewicz says.

In 1994, Western world mine production totalled 322.7 million oz., which represents the fourth consecutive annual decline in output. Analysts attribute the decrease to lower production from byproduct producers in North America and Chile. Production of silver in the West rose by an estimated 15.8 million oz. (or 4.9%) to 338.5 million oz., following the reactivation of suspended operations in North American and elsewhere.

Meanwhile, total fabrication demand (including coinage) increased steadily, to about 680 million oz. in 1995 from 548.6 million oz. in 1991. This increase in silver demand for jewelry and silverware has been most noticeable in the newly industrialized countries of Asia.

Hajdukiewicz acknowledges that demand is outstripping current mine production but points out that disinvestment by investors has met the shortfall.

“The bulls would have you believe we are in a deficit position, until you factor in that disinvestment totalled more than 150 million oz. in 1994,” he told delegates at the recent annual convention of the Northwest Mining Association in Spokane, Wash. He went on to predict that forward sales of the metal by mining companies will “cap the market,” as prices move toward US$6 per oz.

He foresees a similar trend for gold, which currently trades at over US$390 per oz. The metal has remained in the US$370-to-US$390-per-oz. range for more than a year, and Hajdukiewicz believes the market has a short-term cap of US$390 per oz. While conceding that gold could rise above US$400 per oz. this year, he adds that “a drop to US$350 is also likely.”

Silver is often produced with lead and zinc, and Hajdukiewicz provided insight into the projected trading range for those metals in 1996.

Lead producers enjoyed robust prices in 1995, thanks to a hot summer and strong automobile production. Prices recently have ranged from US30 cents to US36 cents per lb., and could rise to US45 cents if the winter proves harsh and a production shortage occurs.

Prices for zinc are ranging between US40 cents and US$50 cents per lb., and, although overall supplies are described as adequate, continued economic growth is necessary for the market value to be maintained.

Overall, Hajdukiewicz believes the present world economy will continue to grow, although he points out that precious metals producers are now facing large speculator-investors who can have an immediate impact on the markets.