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Silver Mine Production Dips; First Drop in 14 Years

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We recently reported on declining gold production in China and an overall tightening in supply. It appears this is also a growing squeeze on the silver supply. In 2016, global silver mine production fell for the first time in 14 years.

According to a report by the Silver Institute, silver mine production declined by 0.6% to a total of 885.8 million ounces.

Global silver mine production in 2016 recorded its first decline since 2002, largely the result of lower by-product output from the lead/zinc and gold sectors.  Coupled with less silver scrap supply to the market, which posted its lowest level since 1996, as well as a contraction in producer hedging, total silver supply decreased by 32.6 million ounces in 2016.”

Silver Supply

Mine Production890.8885.8
Net Government Sales
Net Hedging Supply7.8-18.4
Total Supply1,039.71,007.1

Demand outstripped supply in 2016 for the fourth straight year. Falling supply drove the third largest silver market deficit on record at 147.5 million ounces. The shortfall came in at 106.7 million ounces in 2015.

Mexico ranks as the world’s leading silver producer, and registered the largest drop in production last year. Australia and Argentina also reported decreased output.

Mine production wasn’t the only factor squeezing supply. Even with higher prices, silver scrap fell to 139.7 million ounces in 2016, down from 141.1 ounces the year before. It was the lowest level of scrap supply since 1996.

As one would expect from these supply and demand dynamics, the price of silver increased last year.

The annual average silver price posted an impressive 9.3% increase in 2016, its first rise since 2011…The average price last year, at US$17.14, registered 28% higher than 2007, when the silver price averaged US$13.38.”

Overall demand for silver jewelry, coins and bars fell slightly, as one would expect with higher prices, but industrial demand was robust.

Silver demand for photovoltaic applications posted a noteworthy 34% rise to reach 76.6 Moz.  This growth was the strongest since 2010 and driven by a 49% increase in global solar panel installations.  Silver’s use in the ethylene oxide industry grew at the margin, yet it was a record performance for the sector supported by a 6% rise in global capacity.”

Many factors impact the price of silver, but supply and demand is one of the most basic underlying dynamics in any market. As with gold, tight supply appears to be the trend in silver.

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