Silver market sees fourth consecutive y/y shortfall

17th November 2016 By: Anine Kilian - Contributing Editor Online

JOHANNESBURG ( – The silver market is expected see a yearly physical deficit of 52.2-million ounces in 2016, marking the fourth consecutive year in which the precious metal has realised an yearly physical shortfall, according to the Thomson Reuters Silver Institute Interim Silver Market Review 2016.

While such deficits do not necessarily influence prices in the near term, multiple years of yearly deficits can begin to apply upward pressure to prices in subsequent periods.

“This year, an expected 71.4-million ounces of net inflow into exchange traded product (ETP) holdings, and a 61.9-million-ounce derivatives exchange inventory build on a year-to-date basis, have increased the impact of the physical deficit, bringing the net balance to –185.5-million ounces, which is equivalent to about nine weeks of global demand,” says Thomson Reuters Silver Institute senior analyst Johann Wiebe.

Meanwhile, aboveground stocks, including ETPs and exchange inventories, are expected to reach 2.64-billion ounces in 2016 – a 15% increase from the previous year.
“Silver prices this year to November 11 averaged $17.23/oz, which was 9.9% higher than in the same period in 2015.”

The GFMS team at Thomson Reuters forecasts silver prices to average $17.15/oz for the full calendar year, a 9.4% increase over the 2015 average.
Total silver supply is forecast to fall 3% to 1.01-billion ounces in 2016.

The decline is expected to be driven by a 1% drop in mine production, a 0.3% fall in scrap supply and net dehedging of 20-million ounces.

Mine production is forecast to reach 887.4-million this year, which is almost 6-million ounces lower than 2015 and the second highest year of production on record.

Healthy increases in primary silver mine production, particularly in Peru, are being partially offset by losses in silver output from lead, zinc and gold mines.

Following four years of consecutive declines, scrap supply is contracting only marginally – by 0.5-million ounces compared with 2015 – which is a marked change from the 29-million-ounce yearly average decline recorded over the previous four years.

Thomson Reuters attributes this improved sentiment to higher local silver prices.
Silver bullion coin and bar sales are expected to contract 24% to 222-million this year.

“The drop is unsurprising given the strong increase recorded in the prior year, when investors entered the market en masse to bargain hunt, following the silver price decline during the second half of last year,” Wiebe points out.

Physical bar demand is expected to contract by 38% this year to 99.3-million ounces, driven by a lacklustre Chinese economy and weak consumer sentiment in North America.

Physical bar and coin demand should account for 21% of physical demand in 2016, down from 25% in 2015 and up from just 5% ten years ago.   
Silver demand from the photovoltaics industry is forecast to increase by 11% to reach a record high of 83.3-million ounces this year.

The rise is driven by global solar installations, which should reach 70 GW in 2016.

Jewellery fabrication is forecast to drop 8% to 208.5-million ounces in 2016.

A decline in discretionary spending, thrifting, lower economic growth and a higher silver price have all contributed to the overall decline.

In China, demand for high-purity silver bracelets has, however, been rising.

Competition for low-end silver jewellery between smaller fabricators and branded outlets has intensified, weighing down on jewellers’ profitability, while overall jewellery demand in Asia is expected to contract by 10% this year.