Silver miners under pressure to trim costs

A 24% year-on-year drop in the average annual silver price in 2013 to US$23.79 per oz. and an average price for the precious metal of US$19.71 per oz. in the third quarter of this year continues to put pressure on silver producers.

But the mood at the recent thirteenth China International Silver Conference in China’s northern coastal city of Tianjin was remarkably upbeat, says Michael DiRienzo, the executive director of the Washington, D.C.-based Silver Institute and one of the annual conference’s sponsors.

“It’s a challenging time, but producers are doing everything they can to address the current market,” DiRienzo says, who recently returned from the three-day meeting of over 400 delegates that ran from Sept. 24–26. “On the whole, they’re doing what they need to do. I would say the conference mood was optimistic for the future of silver given the duality of the metal — that there is both industrial and investor demand.”

DiRienzo said the consensus at the conference seemed to be that industrial demand would be the same as it was in 2013, with “no major increases and no major decreases,” but that it “won’t be until the global economy picks up that we will see a big uptick in silver industrial production.

“Most of the players are forecasting nice robust increases in industrial demand down the road for silver, as well as a higher silver price,” DiRienzo continues. “Over 50% of silver demand is for the industrial side and what we’re seeing in the industrial complex is that it continues to be used in a wide range of applications.”

According to the Silver Institute’s World Silver Survey released in May, industrial demand for silver in 2013 declined for the third year in a row, falling 0.4% to 586.6 million oz., “largely as a result of the benign economic performance in Europe, though falls were recorded in most key markets.” The survey noted that “a 9% rise in Chinese industrial demand and a modest lift from Japan failed to offset weaker demand from key Western markets, with North America and Europe slipping by 7% and 3%.”

While the gold price last year fell 28%, the 24% drop in the silver price “was the second consecutive double-digit decline and the strongest year-on-year percentage decrease in the annual average price since 1985, when silver fell by 25%,” the survey stated. (The silver price moved from an annual peak of US$32.23 per oz. on Jan. 23, 2013, to a low of US$18.61 per oz. on June 27, the lowest daily fix since August 2010. By contrast the average annual silver price in 2012 was US$31.15 per oz.)

The survey — prepared for the Silver Institute by the GFMS team at Thomson Reuters — attributed the decline in silver prices last year mostly to “investor liquidations of silver futures and options positions on exchanges and large-scale sales from investors of physical inventories.”

Meanwhile, global silver-mine production grew for the eleventh straight year, rising 3% in 2013 to a record 819.6 million oz., up from 792.3 million oz. produced in 2012. The rate of growth in silver production last year, however, slowed from the 5% increase it posted in 2012.  

At the same time, total cash costs for primary silver producers rose 1% in dollar terms to US$9.27 per oz., up from US$9.16 per oz. in 2012, and US$8.09 per oz. in 2011.

Geographically, silver production in 2013 rose the most in Peru, China and Guatemala, according to the survey. The top-10 silver-producing countries were: Mexico (169.7 million oz.); Peru (118.1 million oz.); China (118 million oz.); Australia (59.2 million oz.); Russia (45.4 million oz.); Bolivia (41.2 million oz.); Chile (39.2 million oz.); Poland (37.6 million oz.); the U.S. (35 million oz.) and Argentina (24.7 million oz.)

The top-10 silver producers in 2013 were: Fresnillo (38.8 million oz.); BHP Billiton (37.6 million oz.); KGHM Polska Miedz (37.3 million oz.); Glencore/Xstrata (37.1 million oz.); Goldcorp (30.3 million oz.); Polymetal International (27.2 million oz.); Pan American Silver (26 million oz.); Volcan Compania Minera (20.7 million oz.); Minas Buenaventura (20.7 million oz.); and Coeur Mining (17 million oz.).

When the annual conference in China began 13 years ago, DiRienzo recalls, there were only 80 delegates, but that number has grown steadily.

“China is an important market. It’s the world’s third-largest silver-mining country and number one in terms of fabrication demand,” he says. “They have always been a big player. The U.S., for a number of years, was number one. It wasn’t until 2008 that China started to take over on the demand side, and they’ve been ahead of the U.S. ever since.”