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Silver Supply

IMPORTANT NOTE: The following is for informational purposes only and was developed by Thomson Reuters GFMS on behalf of The Silver Institute in Washington, DC. It does not take into account the investment objectives, financial situation or particular needs of any particular person. Information is from sources believed to be reliable, but is not guaranteed as to its accuracy or completeness. Opinions and estimates are the judgment of Thomson Reuters GFMS and are subject to change without notice. Distribution of this information does not constitute agreement with, or an endorsement of, the views expressed. Obviously, future outcomes are impossible to predict with certainty. Investors should obtain advice based on their own individual circumstances and understand the risks before making any investment decisions.

  • Global silver mine production grew last year, by 4%, rising to a new record of 787.0 Moz (24,478 t).
  • By-product output from the lead/zinc sector provided much of the growth, up by 9%, with strong growth in China, Mexico and India.
  • Primary silver mine supply grew only slightly in 2012, by 1%.
  • Primary silver total cash costs rose by 9%, to $8.88/oz, as credits from base metal by-product revenues fell, coupled with lower grades and higher input cost inflation.
  • Producer de-hedging of silver contracts amounted to 41.5 Moz (1,289 t) representing a 43% cut to the silver producer hedge book.
 World Silver Supply Chart

Global silver mine production increased again last year, as it rose by 4.0% to 787.0 Moz (24,478 t). Nevertheless, this growth actually fell short of our expectation that mine output would touch 800 Moz. The primary silver mining sector grew only modestly, up 1% to 221.6 Moz (6,892 t) to account for 28% of global silver mine output. The reason for this comparatively balanced outcome from the primary sector related to two decreases at major primary silver mines; Fresnillo in Mexico saw lower processed grades, while Lucky Friday in the United States suffered from mining operations being suspended for much of 2012 to allow for upgrades to the main shaft. These two outcomes largely countered a broad base of production gains across the primary sector. The principal driver of global growth in fact originated from the lead/zinc sector, with robust increases in China, India and Mexico. Primary silver producers’ Total Cash Costs increased by 9% last year to $8.88/oz, owing to input cost inflation and an easing of credits associated with lower base metal prices.

Mobilization of Above-Ground Stocks Chart

Global scrap supply retreated 1.6% from its record high in 2011 to reach an estimated 253.9 Moz (7,897 t) last year. Supply from industrial sources saw further gains in 2012 as elevated metal prices and tighter environmental legislation lifted recycling volumes, with these gains offset by a decline in supply from the recovery of silver from old silverware and jewelry, coins, and further attrition in the contribution from photographic sources. The picture across world markets was far from uniform, even within the industrialized world. Scrap supply from Europe for instance recorded a 5% rise due in part to increased refining capacity to handle growing industrial scrap, while the depletion of near-market stocks of jewelry and silverware accounted for much of the 10% fall in US recycling. Elsewhere, India registered its fourth consecutive increase in scrap supply, recording a near 30% jump, thanks mainly to a weaker currency that lifted silver in rupee terms to near record levels.

Silver Output by Source Metal and World Silver Mine Production Chart

Silver Supply - Its Components

Mine production remains by far the largest component of silver supply, normally accounting for around two-thirds of the total (last year was higher at 75%). However, mine production is not the sole source; the others being scrap, disinvestment, government sales and producer hedging. Scrap, or more properly “old scrap,” is the silver that returns to the market when recovered from manufactured goods. This could include old jewelry, photographic chemicals, even discarded computers. However, it excludes silver that is returned untransformed by the manufacturing process or that never becomes an end product - so called “process scrap”. Old scrap normally makes up around a fifth of total supply.

Disinvestment and government sales are similar in that both comprise the return to the market of old bars and coins by the private sector and governments. It is worth bearing in mind that these sources may not add to supply every year on a net basis. In some years, individuals have been net investors (as was the case in 2008) and governments net buyers. The final, though normally minor, component of supply is producer hedging or the early sale by mining companies of future production. Hedging may also not appear every year on the supply side on a net basis as it can form part of demand as de-hedging (as occurred in 2012).

Silver Mine Production - Where It Comes From

Geographically, nearly half of mined silver comes from the Americas. Indeed six of the ten largest producing countries are in this region, including the two of the three biggest, Mexico and Peru. Of greater market relevance is the type of mine that silver comes from – most silver emerges as a by-product of the mining of other metals. Most substantially, silver production comes from lead/zinc operations.

Only around 30% of output comes from so-called primary silver mines, where silver is the main source of revenue. This is noteworthy given that the impact of the price of silver is most acute on primary silver production, whereas by-product silver production is in large part a function of the price of the other metals, with which silver is mined.

Net government stock sales in 2012 dropped for the second year, falling a notable 39% to a 15-year low of 7.4 Moz (229 t). This was largely driven by the continued decline in disposals from Russia. If we exclude that country, interest in reducing silver bullion holdings remained subdued, as the bulk of sales were believed to have been related to the release of old coin stocks.

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