Silver investing hits new highs, but so did production as ‘thrifting’ hits solar PV use.
This article originally appeared on BullionVault and is republished here with permission.
Silver investing hit new record levels by weight in 2014 according to leading experts, but so too DID mining production.
"Healthy" interest from private investors, "especially in India and the US," says London-based consultancy Metals Focus, has "seen physical investor demand post record highs, noteworthy especially for India given the dramatic surge in retail demand in 2013."
But that growth failed to push total demand higher, according to another consultancy, Thomson Reuters GFMS—and silver prices fell by one-fifth to the start of 2015.
"Despite the decline in silver, we expect that global silver mine production will rise by 32 million ounces in 2014 [995 tonnes]," say GFMS analysts Will Tankard and Dante Aranda, writing in the global trade body London Bullion Market Association's latest quarterly Alchemist magazine, and attributing the near -4% annual jump to just three major mines, in Guatemala, Mexico and Chile.
But on the demand side, and reporting the consultancy's latest findings to the Washington-based Silver Institute of producers, processors and end-users in November, GFMS' Silver Interim Report put total world offtake 6.7% lower in 2014 from 2013 thanks to weak industrial use in the first half of the year.
Now as 2015 begins, "Chinese imports of silver have started to rise recently," notes precious metals analyst David Jollie at Japanese trading house Mitsui, "suggesting that destocking [of industrial stockpiles] in China may be nearly complete."
But "global GDP growth outside the US has failed to gain significant momentum," says Metals Focus, pointing to other data from China as well as Europe, plus the "signal of poor demand" coming from crashing oil prices.
"Concerns about thrifting on the use of silver in a range of industrial applications has also added to the bearish sentiment."
Solar energy in particular is now being produced with lower quantities of silver. "For instance," say base-metal and fertilizer specialists CRU in a separate report for the Silver Institute, "DuPont has invented a silver paste"—a key component of photovoltaic cells—"in which the content of silver is reduced by 15% compared to traditional pastes."
So despite a 25-30% rise in global PV capacity last year, says Metals Focus, "thrifting will see average silver loadings fall by an estimated 20%, resulting in a far smaller impact on global silver demand"—and helping encourage "bearish sentiment" amongst larger, institutional investors.
Retail investor demand for Silver Eagle coins, meantime, more than accounted for the total growth in world mine output in 2014, with the US Mint selling a record 44 million ounces and "running out of this year's allocation on December 24" according to analyst Jonathan Butler at Japanese conglomerate Mitsubishi.
Physically backed ETF fund the iShares Silver Trust (NYSEArca: SLV) saw its holdings grow 2% by weight in the second half of 2014, but drop 22% by value as prices sank, extending their drop to new 5.5-year lows.
"Ultimately," says Metals Focus, "[retail silver investing] has been comfortably outweighed by the flow of institutional money, being the key driver behind silver's poor performance."