Silver demand slated to rise

As the global economy improves this year, demand for silver should recover from 2001 levels, according to World Silver Survey 2002, published by the Washington, D.C.-based Silver Institute.

Silver fabrication demand dropped 4.9% in 2001, reflecting a downturn in the world economy and, in particular, a poor showing in the electronics sector. This is not surprising given that world economic growth slumped to its lowest level since the early 1990s.

Industrial use of silver is the largest component of silver fabrication demand. Electrical and electronics applications account for the largest area of industrial silver offtake, having consumed nearly 133 million oz. last year. Other important industrial uses include brazing alloys and solders, which took up 36 million oz.

Jewelry and silverware fabrication demand rose 2.2%. Asia accounted for most of the global gains, with Indian consumption growing especially strongly — up nearly 22%. Thailand reported an 8% growth in offtake. Demand for silver-bearing photographic products was 4% lower in 2001, owing to the slowdown in the economy (and in tourism, in particular). This affected both consumer imaging and the graphic arts industry. However, demand was higher in the United Kingdom and Japan, and in China, where demand rose 30%. Radiography remains an important component of silver photographic demand, having consumed 73 million oz., while consumer photographic demand accounted for 87 million oz.

Consumption of silver for coins and medals dropped 9% in 2001 because of lower demand in the U.S. and Germany, the two largest coin-manufacturing countries. Gains in this sector were posted in Mexico, Spain and China.

On the supply side, silver fell 6% in 2001 despite a 1.5% increase in mine production. This increase resulted from growth at several base metals operations, particularly in Peru and Chile, where silver is produced as a byproduct. Silver from primary mines generated only 25% of all the silver mined last year. Mexico again mined the most silver, followed by Peru, Australia, the U.S. and China.

The survey predicts that a weak outlook for base metals prices in general, coupled with the implementation of numerous production cutbacks at zinc and copper operations and reduced silver byproduct from gold mines, will cause silver production to fall in 2002.

For the third year in a row, the silver market had to absorb an unusually high level of sales from government stock. Official sector sales were up 9.7%, year over year, though they were still lower than in 1999.

Chinese government sales accounted for 75% of the world’s total of official stock sales. The survey concludes that China does not have the capacity to supply the market at the levels seen in the past three years. Also in 2001, the U.S. Defense Logistics Agency transferred its remaining silver stockpile to the U.S. Mint for its coinage programs. The U.S. Mint is now exploring legislative authority to purchase silver from the open market for its silver coinage programs. For the first time in more than a decade, there were virtually no net sales out of private-sector stocks, indicating some modest silver investment last year.

In 2001, the structural deficit between fabrication demand and conventional supply (mine production and recycled scrap) was 89.4 million oz. — a gap almost entirely filled by net government stock sales.

The survey has been published regularly by The Silver Institute since 1990, and is sponsored by 18 companies and organizations from North and South America, Europe and Asia.

Supply and demand