Silver Industrial Demand Rebounded in 2017; Mine Supply Recorded Second Consecutive Loss

Industrial demand for silver, fueled by record photovoltaic growth, rose in 2017 for the first time since 2013. A stronger global economy led to healthy demand from the semi-conductor market, resulting in greater silver offtake in electrical and electronics applications as well as brazing alloys and solders. The jewelry and silverware sectors also experienced noteworthy gains in 2017. On the supply side, global mine supply fell for the second consecutive year, following an uninterrupted streak of 13 annual increases prior to 2016. Silver scrap supply, which has been in retreat since 2012, again registered a loss. These factors led to a tightening of the supply/demand balance, contributing to a physical deficit of 26 million ounces (Moz) in 2017, the fifth consecutive annual deficit.

These findings, along with other key segments of the silver market, are discussed in World Silver Survey 2018, released today by the Silver Institute and produced on its behalf by the GFMS Team at Thomson Reuters (GFMS).

Silver Industrial Demand

Global silver industrial fabrication demand returned to growth in 2017, increasing 4 percent to 599.0 Moz. This was the first rise in silver industrial fabrication since 2013. This growth was bolstered by another year of impressive photovoltaic demand, rising 19 percent in 2017, the result of a 24 percent increase in global solar panel installations. Brazing alloy and solder silver fabrication recorded a 4 percent annual rise to 57.5 Moz, boosted mainly by solid growth from China and Japan.

The surge in electronics, most notably in semi-conductor fabrication demand, led to the electrical and electronics segments delivering the first annual increase in offtake in this category since 2010, with 242.9 Moz consumed last year. Silver demand for the production of ethylene oxide retreated by a third from 2016 volumes to 6.9 Moz, mostly due to a decline in new installations. GFMS estimates that silver’s use in photography, which fell by 3 percent last year to 44.0 Moz, appears to have stabilized, with renewed interest in various photographic applications utilizing silver, only falling marginally over the last few years.

Silver Jewelry and Silverware Demand

Silver jewelry demand moved 2 percent higher in 2017 to 209.1 Moz. India was chiefly responsible for the gain, rising 7 percent over 2016 volumes. Demand also picked up strongly in North America, with the United States posting a 12 percent rise to an all-time high. Global demand for silverware jumped by 12 percent last year to 58.4 Moz, led by a strong recovery in demand from India, which experienced a 19 percent increase. North America also posted solid gains, rising 5 percent to 1.6 Moz.

Silver Supply

Global silver mine production fell by 4.1 percent in 2017, experiencing its second consecutive annual decline to record 852.1 Moz. The decline was mainly credited to a series of supply disruptions across the Americas. Another leading factor in the drop was due to the primary silver and gold sectors, where production fell by a combined 29.4 Moz. Of the key producing countries, Peru and China registered subtle dips, followed by more acute losses in Australia and Argentina. Offsetting those losses was higher output from Mexico, which was once again the world’s top silver producing country, trailed by Peru, China, Russia and Chile.

Supply from primary silver mines decreased by 9 percent in 2017 to contribute 28 percent of total mine supply. The lead/zinc sector contributed 36 percent of by-product output, followed by copper at 23 percent and gold at 12 percent.

Silver scrap supply fell to 138.1 Moz, marking its sixth successive yearly decline.  Lower scrap flows from Asia, mainly China, driven by a lack of incentives from both suppliers and consumers to recycle their valuables, is chiefly responsible for the fall. Supply from the western world was marginally higher, driven by increased volumes from the United States and Europe.

Above-ground stocks rose 3 percent last year. Of the four exchanges that report silver stocks, three saw total silver inventory growth of 2 percent in 2017; COMEX in the United States, the SHFE and the SGE in China. In contrast, silver inventories held at TOCOM declined dramatically by 98 percent, driven by strong industrial demand in Japan.

GFMS reports that government sales of silver were once again absent from the silver market in 2017. Lastly, in the supply category, the delta-adjusted hedge book inched higher by 1.4 Moz, ending last year at 21.5 Moz.

Silver Price and Investment

The annual average silver price fell by a slight 0.5 percent to $17.05/oz last year, with prices trading in a $15.22/oz – $18.56/oz range.  That said, last year’s average silver price represents an 8.7 percent increase over the average posted just two years ago of $15.68/oz.

Identifiable investment, which consists of net-physical bar investment, coins and medals purchased, and net-changes to exchange traded product (ETP) holdings, reached 153.5 Moz in 2017 a 40 percent decline from the previous year. This was primarily the result of a 35 percent decline in coin and medal fabrication, led by lower demand in the United States, Canada and China. Physical bar demand slipped by 16 percent last year.

In contrast, total global ETP holdings increased by 2.4 Moz to finish 2017 at 669.8 Moz. In value terms, total ETP holdings increased 4 percent to $11.3 billion, as the silver price advanced throughout the year.