Silver Institute: Demand perks up in first half 2015

The following is an edited version of a report by The Silver Institute. For more information please visit www.silverinstitute.org 

Through the first half of this year, silver experienced increased demand for jewellery and important industrial applications — two signals of demand growth for the metal.

Silver jewellery, a mainstay of silver demand, was strong in the first half of 2015. In the U.S., silver jewellery imports jumped 11% through the end of May, as consumer desire for silver jewellery increased this year. The U.S. is the largest silver jewellery importer in dollar terms, and this demand impacts silver trade across Asia. U.S. imports from Thailand are up 18.5% through the end of May, while China showed a 14% increase in the same period. Precious metals consultancy GFMS Thomson Reuters (GFMS) estimates that globally silver jewellery demand will grow 5% this year.

With almost 60% of silver demand tied to industrial use, silver’s role in industrial applications looks brighter in several areas. GFMS forecasts a 2% growth in demand for industrial silver applications this year.

In the renewable energy sector, the demand for silver by solar panel producers could increase 8% to 65 million oz. this year. The rise reflects increased solar cell production and more installations. The increase is due to the U.S., which had a 76% increase in solar installations in the first quarter of 2015, compared to last year. China and India both have aggressive solar installation plans and could help drive projected growth as well.

Silver demand from ethylene oxide producers could rise to 8.6 million oz. in 2015, in a 61% increase over 2014. Most of this increase will be driven by Chinese demand. Ethylene oxide is a vital building-block chemical — critical in making plastics, solvents and detergents, and a broad range of organic chemicals — and represents another example of silver’s industrial significance.

Electronics demand is forecast to increase modestly this year, by 0.4%. A decline in silver demand by computer and tablet producers — an expected 4.5% drop in shipments this year — should be partly offset by a 3% increase in mobile phone shipments in 2015.

The silver market could reach a 57.7 million oz. deficit in 2015, as supply contracts and physical demand grows. This would mark the third year that the market is in a physical deficit. When the market experiences an annual shortfall from mine supply, users must draw down on above-ground stocks, which tightens available supply.

On the investment side, retail investor demand for the white metal has been sturdy in the first half of 2015, amidst a challenging precious metals investment market. Through July 24, global silver ETF holdings increased by over 4.7 million oz. in 2015, indicating that these investors likely have a more positive longer-term view of the silver price.

In the first half of the year, global bullion coin sales totalled 43.6 million oz., 6% below levels seen in the same period a year ago. But in the first half global sales were the fifth highest on record. The U.S. Mint, faced with a spike in investor interest, temporarily suspended sales of its silver bullion coins on July 7, after exhausting its inventory when investor demand in June surged 80% above the previous year’s June coin sales. The mint resumed bullion coin sales on July 27 on an allocated basis. Similarly, Australia’s Perth Mint saw its silver coins sales spike in June due to a more attractive silver price, though sales overall are down 18% from the same period in 2014.

The gold-to-silver ratio has averaged 58 since 2000. The ratio averaged 73 in the first half of 2015, indicating that silver is underpriced relative to gold. This gives way to more potential buying in the silver market.