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Industrial Demand for Silver Rebounding to a New High in 2021

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Industrial Demand for Silver Rebounding to a New High in 2021

 

 

 

 

 

Physical Silver Investment Forecast to Jump by 32% in 2021 for a 6-Year High

 

 

Every key area of silver demand is forecast to rise in 2021, including a record total for industrial demand, despite ongoing supply chain challenges, reported Philip Newman, Managing Director at Metals Focus, and Adam Webb, Director of Mine Supply, during the Silver Institute’s Interim Silver Market Review webcast today, which featured historical supply and demand statistics and estimates for 2021. The following are the key highlights from the presentation:

 

  • With each significant component of silver demand forecast to rise in 2021, global silver demand is set to reach 1.29 billion ounces, the first time it has exceeded 1 billion ounces since 2015.
  • The recovery in silver industrial demand from the pandemic will see this segment achieve a new high of 524 million ounces (Moz). In terms of some of the key segments, we estimate that photovoltaic demand will rise by 13% to over 110 Moz, a new high and highlighting silver’s key role in the green economy. This will also underpin much of the forecast 10% gain in electrical/electronics offtake. Finally, brazing alloy & solder demand is set to improve by 10% in 2021, helped by a recovery in housing and construction, although this will still fall short of pre-pandemic levels.
  • Physical investment in 2021 is on course to increase by 32%, or 64 Moz, year-on-year to a six-year high of 263 Moz. The strength will be driven by the US and India. Building on solid gains last year, US coin and bar demand is expected to surpass 100 Moz for the first time since 2015. Growth began with the social media buying frenzy before spreading to more traditional silver investors. Indian demand reflects improved sentiment towards the silver price and a recovering economy. Overall, physical investment in India is forecast to surge almost three-fold this year, having collapsed in 2020.
  • Exchange-traded products are forecast to see total holdings rise by 150 Moz this year. As a result, combined holdings will have risen by a dramatic 564 Moz over the past three years. During 2021 and through to November 10, holdings rose by 83 Moz, taking the global total to 1.15 billion ounces, close to its record high of 1.21 billion ounces which occurred on February 2, at the height of the social media storm.
  • This year, the silver price has built on its 2020 gains and has continued to strengthen. Through to November 10, prices have risen by 28% year-on-year. This follows a 27% rise for the annual average price in 2020. The upside reflects heallthy investor inflows into silver, on the back of supportive macroeconomic conditions, notably the persistence of exceptionally low interest rates, concerns about uncontrolled fiscal expansion and, most recently, growing concerns about rising inflationary pressures. The gold:silver ratio fell to 62 in early February, its lowest since July 2014. However, since then it has risen, to stand at around 74 in early November. Even so, this still compares favorably with last year when the ratio averaged 89. In terms of the full year price average, Metals Focus expect silver to rise by 24% year-on-year to $25.40. This would achieve the highest annual average since 2012’s $31.15.
  • In 2021, mined silver production is expected to rise by 6% year-on-year to 829 Moz. This recovery is largely the result of most mines being able to operate at full production rates throughout the year following enforced stoppages in 2020 due to the pandemic. Those countries where output was most heavily impacted last year, such as Peru, Mexico and Bolivia, will have the biggest increases. Meanwhile, strong silver and by-product metal prices this year have improved profitability in the silver mining sector despite rising input costs. Average margins in the industry are currently at their highest since 2012 and only 5% of global primary silver mines were operating with costs above the silver price in the first half of the year.
  • Silver jewelry and silverware fabrication are expected to partially recover from 2020’s depressed totals, rising by 18% and 25% respectively, to 173 Moz and 40 Moz. Both markets will benefit from a marked upturn in all key countries, especially in India as the economy and consumer sentiment have bounced back more quickly than expected, and as restrictions ended in time for the all-important wedding and festive season.
  • Overall, the silver market is expected to record a physical deficit in 2021, albeit modestly. At 7 Moz, this will mark the first deficit since 2015.

 

Silver Supply and Demand Year on Year
Million ounces 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021E 2020 2021E

Supply
Mine Production 763 796 845 882 897 900 864 850 836 780 829 -7% 6%
Recycling 232 216 193 175 167 164 168 168 171 182 192 7% 5%
Net Hedging Supply 5 4 2 1 1 1 1 1 1 1 1 18% -17%
Net Official Sector Sales 12 11 2 15 8 na na
Total Supply 1,012 1,015 1,040 1,069 1,067 1,065 1,033 1,019 1,023 972 1,022 -5% 5%

Demand
Industrial 508 451 461 450 457 491 519 513 515 487 524 -5% 8%
Photography 62 53 46 44 41 38 35 34 33 28 29 -15% 4%
Jewelry 162 159 187 193 202 188 195 202 200 146 173 -27% 18%
Silverware 42 41 47 54 58 54 60 68 62 32 40 -48% 25%
Net Physical Investment 273 241 301 283 310 211 154 163 183 199 263 9% 32%
Net Hedging Demand 40 29 12 2 8 na na
Total Demand 1,046 984 1,070 1,023 1,068 995 965 987 993 892 1,029 -10% 15%
Market Balance -34 31 -30 46 -2 71 68 32 30 80 -7 165% na
Net Investment in ETPs -18 53 5 -0.3 -17 54 7 -21 83 331 150 298% -55%
Market Balance less ETPs -15 -22 -35 111 81 85 129 53 -53 -251 -157 373 % -38%
Silver Price (US$/oz, London price) 35.12 31.15 23.79 19.08 15.68 17.14 17.05 15.71 16.21 20.55 25.40 27% 24%
Source: Metals Focus

 

 

Disclaimer & Copyright. The Silver Institute and Metals Focus

We (and where relevant, any identified contributors or co-authors) are the owner or the licensee of all intellectual property rights in this document. This document is protected by copyright laws and treaties around the world. All such rights are reserved.

 

No organization or individual is permitted to reproduce or transmit all or part of this document (including without limitation extracts such as tables and graphs), whether by photocopying or storing in any medium by electronic means or otherwise, without the written permission of The Silver Institute and Metals Focus. In cases where we have provided our document electronically, only the authorized subscriber, in respect of whom an individual user license has been granted, may download a copy of this document. Additional user licenses may be purchased on request.

 

While every effort has been made to ensure the accuracy of the information in this document, the content of this document is provided without any guarantees, conditions, or warranties as to its accuracy, completeness, or reliability. It is not to be construed as a solicitation or an offer to buy or sell precious metal, related products, commodities, securities, or related financial instruments.

 

Posted November 17, 2021

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