CPM says silver price will be strong late in 2008, early 2009
CPM Group forecasts that total silver supply, mine production, and fabrication demand will increase this year, as investors continue to be net buyers of 74.9 million ounces.
Author: Dorothy Kosich
Posted: Wednesday , 30 Apr 2008
RENO, NV -
CPM Group's Silver Yearbook 2008 released Tuesday forecasts that net investor buying is expected to keep silver prices strong this year, although seasonal price weakness is anticipated during the second and third quarters.
The New York-based precious metals consultants predicted that higher silver prices are expected later this year and early in 2009.
SILVER OUTLOOK
•· This year total supply is projected to increase to 815.1 million ounce, a 3.9% increase mostly attributable to a sharp increase in mine production.
•· Total mine production is projected to be 557.4 million ounces, up 4.1% or 23.7 million ounces from last year. "Numerous major new mines, smaller mines, and expansions are underway around the world, which should boost production in 2008 and beyond."
•· Mine production in Peru could increase slightly to 112.9 million ounces this year. Silver mine output in Mexico is projected to increase to 104.5 million ounces in 2008. Australian silver production could rise to 65.1 million ounces. Silver output in Chile could total 59 million ounces. Silver mine production in Poland is expected to remain at 42 million ounces this year. U.S. silver mine output is projected to increase slightly to 38.4 million ounces. This year Canadian mine output is projected to increase marginally to 27.9 million ounces.
•· Total silver fabrication demand is projected to rise modestly by 2.2% to 740.2 million ounces in 2008. "While higher prices should be expected to restrain the growth of silver use in jewelry and other applications, the price effect may be relatively limited."
•· Demand for silver use in jewelry and silverware is projected to rise 4.6% to a total of 273.5 million ounces in 2008.
•· Silver use for electronics and batteries is forecast to rise to 125.8 million in 2008, up 5.3% from current levels.
•· Silver used for mirrors, brazing alloys, anti-bacterial medication, solders, biocides, and superconductors and other similar applications is expected to rise around 3% to 167.7 million ounces in 2008. The United States is expected to account for 3.1 million ounces of the projected 5.4- million ounce increase.
•· Investors are forecast to be net buyers of 74.9 million ounces of silver this year. "At relatively lower prices, silver could seem more attractive to investors. Going forward this could result in a decline of the gold/silver ratio to lower levels."
•· No significant sales of silver from government inventories are anticipated this year.
REVIEW
CPM's research found that the sharp increase in the price of silver last year "reflected strong investment demand, from many parts of the world and from many types of investors. ...Investors were buying silver for all of the same reasons they were buying gold: As a safe haven during times of financial market distress, as an inflation hedge, as a hedge against a falling dollar, and more. They also found silver interesting because it has stronger fundamentals behind it.
"Fabrication demand has held up well. Supplies are rising, but not so fast as to overwhelm the market. Inventories meanwhile are low in many markets around the world. Given the perception that silver's fundamentals were more positive than gold, some investors were buying silver for commodities-oriented reasons, as well as for all of the financial reasons mentioned above."
Meanwhile, CPM noted that, "humorously, some mining analysts lamented at the start of 2008 that silver prices had risen ‘only' 15.3% over the course of 2007, while gold prices rose 31.3% from start to finish last year. They overlooked the fact that silver prices had risen 45.5% over the course of 2006, twice the 23% increase in gold prices over the same time.
"And they overlooked the fact that the silver price averaged $13.45 in 2007," CPM added. "That was 15.9% higher than the $11.61 average in 2006. It compares to a 15.4% increase in the average gold price last year, from $606.67 in 2006 to $700.11"
The gyrations of the silver price over the past 15 months have reflected both silver-specific trends and broader financial market trends, according to CPM's analysis. "The increased demand for silver from investors, and the decline in sales of silver from long-term investors, has shifted the dynamics of the silver market, which has been reflected in the price of silver."
OTHER YEARBOOK RESEARCH FINDINGS
In 2007 total silver supply was 784.8 million ounces of which 68% came from mine production, according to CPM. It was the smallest increase in total supply since 2002, when silver supplies declined 19.6 million ounces.
World mine production of silver increased 4.1% to a record 533.7 million ounces last year, according to the yearbook. Since about four-fifths of world mine silver output is a byproduct, higher gold, copper, lead and zinc prices have increased production at these mines as well.
Silver use increased 0.9% or 6.3 million ounces to a total of 724 million ounces in 2007. Demand is rising in electronic components where silver is an alternative to gold, palladium and platinum. CPM suggested that next generation silver batteries may begin to emerge, which could lead to a sharp increase in silver use in these applications.
CPM estimated that four exchange-traded silver investment trusts held 230.4 million ounces of silver at the end of last year. Total ETF physical silver holdings stood at 230,386,911 ounces at the end of 2007. At the end of February 2008 total holdings increased to 236,604,557 ounces with two new ETFs holding 10% of the total silver ETF holdings.
Activity in the future and options markets among large non-commercial participants also indicated an increase in investment demand, according to CPM. "Non-commercial market participants have been increasing their gross long positions since September 2007."
However silver coin demand has remained relatively flat since the beginning of this decade. Global silver coinage during 2008 is projected at 16 million ounces, CPM said.
Silver bullion inventories rose last year with another 60.5 million ounces added. CPM estimates silver bullion inventories currently range from between 450 million to 550 million ounces.
Market silver inventories at the end of 2007 increased 15.2% to 153.6 million ounces, according to the yearbook. Reported inventories rose 33.1% to 384 million ounces in 2007. These include both market inventories and ETFs.
CPM estimated that at the end of 2007, government silver inventories declined from 63.7 million ounces in 2006 to 55.7 million ounces. "Out of 55.7 million ounces of government inventories in 2007, it is estimated that 19.1 million ounces are held by the non-RBI in India, 19.9 million ounces by the U.S. government, seven million ounces by the Mexican government, and the remaining 9.7 million ounces by other governments."
Meanwhile, CPM reported that the total volume of silver cleared through the London Bullion Market Association declined from 36.8 billion ounces in 2006 to 28.9 billion ounces in 2007.
Combined trading volumes for 2007 on the four major futures and options exchanges rose 11.9% in 2007 to 58.7 billion ounces, according to the yearbook. Silver Comex futures contract settlement prices rose 15% from the end of 2006 to the end of 2007.
Annual silver price volatility stood at 26.1% in 2007, down from 45% in the prior year. "Volatility is calculated as the standard deviation of the daily logarithmic price changes." By December 2007, the gold to silver price ratio was 55.3:1. During 2007 the price of gold rose by 31% while the price of silver was up 15%, according to CPM.
AI
