METALS: Silver expected to reach $7.50
By Gillian O'Connor Mining Correspondent
Silver prices are expected to reach $7.50 an ounce in the second half of this year and $8-$10 an ounce by 2000, according to an annual silver survey released yesterday by CPM Group, a New-York research group.
CPM estimated that stocks of silver bullion declined by 217.2m ounces in 1998 to about 359.8m ounces at the end of the year, more than two years' cover for the expected shortfall.
The net deficit in the bullion market amounted to 192.2m ounces last year, more than 11 per cent down on 1997, and is expected to fall to 144m ounces this year.
The price target for the second half represented a rise of over one-third on the price fixed in the London bullion market yesterday.
Mr Jeffrey Christian of CPM acknowledged in the silver survey that he had been a touch premature in some of his forecasts a year ago.
Mr Christian said silver inventories continued to be drawn down, and that silver inventories were approaching critically low levels, although he reckoned the firm's basic analysis still held.
"The evidence is everywhere in the market, from the price and contango performance to the degree of difficulty fabricators are reporting in finding metal at times to the behaviour of refiners and dealers," he said
Mr Christian said last year's mere 12 per cent rise was due to more factors than just a simple supply and demand mismatch. First, he blamed the considerably larger than declared stocks of silver, which can be used as collateral by people selling silver short.
For example, the silver in catalysts used in hundreds of ethylene oxide plants around the world is largely owned by bullion banks and dealers and leased to the chemical companies, running the plants. The companies in turn used the silver as collateral for trades.
On top of this supply, the vast majority of activity in the silver market - some 98 per cent - does not relate to physical trades.
Any price derived from supply-demand sums based solely on annual physical transactions without considering the remaining 98 per cent paper transactions did not reflect the true state of the market.
Mr Christian also commented on the efficiency with which Warren Buffett's Berkshire Hathaway group had quietly accumulated 129.7m ounces between July 1997 and January 1998.
The market is waiting eagerly to see what Mr Buffett says about this holding in his chairman's statement next month.
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