VM Group predicts silver surplus will narrow in '09
miningweekly.com
By: Liezel Hill
4th May 2009
TORONTO (miningweekly.com) – Increased demand from silver exchange traded funds and falling mine production of the metal will likely result in a narrowed supply surplus in the silver market this year, metals consultancy VM Group predicts in the latest edition of its Silver Book.
Silver prices sunk as low as $8,88/oz in October 2008, but have recovered to trade for most of this year between $12/oz and $14/oz.
The price strengthening can be attributed to investors' hunger for safe haven assets, writes VM Group CEO Jessica Cross.
Since late October, investment demand has grown rapidly, having risen by 90-million ounces on New York's Comex futures market and 50-million ounces in the US ETF, as silver has tracked gold.
“However, it is investment demand now that is largely supporting the price and any outflows will have a significant impact,” Cross points out.
VM Group expects that industrial demand will be markedly lower this year, while zinc and copper production curtailments and closures will cut into silver mine supply.
Most silver end-use sectors are expected to experience little or no growth this year, because of sluggish economic activity and restrictive credit lines.
Growth in the radio identification tag and photovoltaic sectors, both of which are seen as key for the silver market going forward, will slow in 2009, “but should resume once global economic conditions improve”, Cross says.
Demand for photovoltaic, or solar cells is expected to be robust by 2010, because a portion of the US economic stimulus package will be directed into the renewable energy sector, she comments.
“The overall supply/demand balance forecast is for a narrowing surplus this year, as ETF demand takes up some of the slack from falling industrial demand, while mine supply decreases.
“This surplus represents metal available to investors, and their appetite to absorb this metal will dictate price direction.”
FALLING MINE SUPPLY
Because it is often produced as a byproduct from primarily base-metal mines, the economic downturn has had a much more noticeable effect on silver production than on its more expensive sibling, comment VM metals analysts Carl Firman and Matthew Turner.
“Since the onslaught of the recession a small proportion of by-product gold has been removed due to base metal mine closures and cut backs, but this has not exerted any upward pressure on the gold price since supply cuts have been minimal and more than compensated by increased scrap supply,” the analysts write.
However, in the fourth quarter of 2008, aggregate silver production for the top 20 miners (primary and by-product production) slipped almost 5%, to 10 979 t.
In 2009, global silver output could decline by at least 700 t, as miners maintain production cuts and delay mine start ups.
The Silver Book is sponsored by Fortis Bank. |
