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Silver Mine Output Drops for Second Straight Year; Industrial Demand Up

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Global silver mine supply dropped for the second straight year as industrial demand rose for the first time since 2013, according to the World Silver Survey 2018 produced by the GFMS team at Thompson-Reuters and released by the Silver Institute this week.

Industrial demand for silver rose 4% to 599 million ounces last year. Solar panel fabrication primarily drove the growth. Photovoltaic demand climbed 19% as solar panel installations worldwide rose 24%.  Brazing alloy and solder silver fabrication also increased, rising about 4%.

The surge in electronics, most notably in semiconductor fabrication demand, led to the electrical and electronics segments delivering the first annual increase in offtake in this category since 2010, with 242.9 Moz consumed last year.  Silver demand for the production of ethylene oxide retreated by a third from 2016 volumes to 6.9 Moz, mostly due to a decline in new installations.  GFMS estimates that silver’s use in photography, which fell by 3 percent last year to 44.0 Moz, appears to have stabilized, with renewed interest in various photographic applications utilizing silver, only falling marginally over the last few years.”

Even with the healthy increase in industrial consumption, overall demand for silver fell slightly in 2017 due to weakness in the investment sector. Total demand came in at 1017.6 million ounces, a 2.3% decrease from 2016.

Silver bar and coin demand plummeted to 151.1 million ounces from 205.0 million ounces the year before. Identifiable investment, consisting of net-physical bar investment, the purchase of coins and medals, and net-changes to exchange-traded product (ETP) holdings, reached 153.5 million ounces last year, a 40% decline from the previous year.  This was primarily driven by a 35% drop in coin and medal fabrication, led by lower demand in the United States, Canada and China.

Physical bar demand slipped by 16% in 2017.

Silver jewelry demand increased 2% last year, pushed upward by strong North American buying. The US posted a 12% rise to an all-time high. Silver jewelry sales in India also posted a 7% gain over 2016 volumes.

Shrinking Supply

Global silver mine production fell by 4.1 percent in 2017. It was the second straight year of declining mine output.

Of the key producing countries, Peru and China registered subtle dips, followed by more acute losses in Australia and Argentina.  Offsetting those losses was higher output from Mexico, which was once again the world’s top silver producing country, trailed by Peru, China, Russia and Chile.”

Supply from primary silver mines decreased by 9% last year, contributing 28% of total mine supply. The lead/zinc sector contributed 36% of by-product output, followed by copper at 23% and gold at 12%.

Silver scrap supply also dropped, falling to 138 million ounces. It was the sixth straight year of declining silver scrap supply.

Overall, the silver market saw a net physical surplus deficit of -35.2 million ounces.

Many analysts think silver is set for a breakout. The silver-gold ratio remains historically high. This means silver is undervalued compared to gold. Currently, the silver-gold ratio stands over 80 to 1. This means you can buy 80 ounces of silver with one ounce of gold. Compare that with the historic average ratio which hovers around 16:1. The modern average over the last century is around 40:1. As Peter Schiff said in a video last year, “This is silver on sale.”

The Silver Institute World Silver Survey indicates the fundamentals look good in the silver market. Earlier this year, analysts at the Silver Institute said they expect strong demand in 2018 in an environment of tightening supply.

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