Has Peak Silver Arrived?
The comments above & below is an edited and abridged synopsis of an article by Secular Investor
Last year was the first in more than a decade when primary silver production decreased. After seeing a total silver production of approximately 668 million ounces in 2007 increasing to 891 million ounces in 2015, we saw a (first) decrease to 886 million ounces in 2016.
The total recovery from scrap and the inflow from hedges decreased as well, causing the total silver supply to decrease by approximately 3% to 1.007 billion ounces, the lowest level since 2013.
While total demand for silver also decreased, 2016 was the fourth consecutive year with a supply deficit.
The supply side of silver isn’t slowing down (yes, the total demand was lower due to lower demand for investment uses), but the silver demand from industrial sectors is still elevated.
This means the supply side will have to (try to) keep up with demand. Only 30% of mine supply is coming from mines that have the commodity as a primary product. Twelve percent comes from primary gold mines, while 23% is mined as part of primary copper deposit. With the current low gold and copper prices, not a lot of new mines will be developed, which will put pressure on the supply side of the equation.
Fortunately 35% of mine supply came from lead-zinc mines, and as these two commodities are performing well, it’s not unlikely that more will be brought into production, boosting silver output. Several larger zinc mines have been shut down however, and the average grade of the precious metal as a by-product in the advanced-stage zinc mines is dropping to a level where smelters don’t deem the silver to be payable due to low recovery rates in the process.
Long story short: demand for silver is here to stay, but the supply side may be unable to keep up. Scrap supply seems to have peaked, and it won’t be easy to increase the mine supply.