EDITOR'S NOTE: Catch the all new Kitco.com Market Data and Bitcoin sections!

CPM Group: Silver Investment Falls But Fabrication Demand Rises In 2013

By Kitco News
Tuesday April 29, 2014 9:00 AM

(Kitco News) - Net global silver investment declined in 2013 while fabrication demand increased, with a rises in the amount of metal used for jewelry, silverware and solar panels, said CPM Group Tuesday.

Overall silver supply fell last year, mainly the result of less recycling, while mine supply rose, the consultancy said in its 206-page Silver Yearbook 2014.

Prices for silver, based on the settlement for the nearby active contract on the Comex division of the New York Mercantile Exchange, slipped to an average of $23.75 an ounce in 2013. This represented a decline of 23.8% from 2012, although prices over the course of 2013 remained at elevated levels, CPM Group said.

“Silver prices are forecast to consolidate during 2014, potentially moving higher
during the latter half of the year,” the consultancy said in the report.

Shorter-term investors were primarily responsible for the weakness in silver last year, CPM Group said. However, the consultancy also said, overall investment remained strong enough for the metal to hold up at historically high levels.

“Silver faced some of the same problems that were being faced by the gold market last year: unrealistic investor expectations, especially on the part of shorter-term investors,” CPM Group said. “Many shorter-term investors that were holding onto silver in the hopes of prices rising back toward $50 or higher lost interest in silver, especially with improved conditions in the equity and real estate markets during 2013.

“That is unfortunate for these investors, because there are many economic, political,
and financial problems still at large in the world, and they are likely to negatively affect stocks, bonds, and other traditional investments,” CPM Group later said in the report. “Buying and holding silver as partial insurance and protection against these hostile developments still makes sense, and represents part of a sound investment strategy.”

In fact, said CPM Group, longer-term investors viewed the weakness in silver prices as a buying opportunity, which kept prices from falling further. A consolidation phase in the silver market likely would provide investors with confidence to step back in as buyers, as this would quell fears that prices may decline further, CPM Group said.

On a net basis, silver investment demand slipped to 105.3 million ounces, down 42% from 2012, and hit the lowest level of investment demand since 2008, when investors absorbed 64.8 million ounces of silver, the report said. Still, despite the decline, the consultancy also reported that silver net investment demand was the 10th highest level since 1960.

Global demand for silver coins rose to a record high of 136 million ounces in 2013, compared to 105.9 million in 2012, CPM Group said. Silver exchange-traded-fund holdings fell by 2.5 million ounces to 616.6 million, still the second-highest level. However, the net-long position of non-commercial accounts, which are large institutionally managed investor funds, on Comex declined to the lowest levels since 2003, CPM Group said.

Net investment demand is forecast to slip further to 86.9 million ounces in 2014, CPM Group said. “These purchases are large and should prevent prices from declining significantly during 2014, but this level of investment demand is not strong enough to drive silver prices sharply higher.”

Meanwhile, weaker silver prices since 2011 boosted fabrication demand, which rose 6.3% to 865.8 million ounces in 2013, CPM Group said. This was the highest level of fabrication demand since 2007, when it was 865.9 million ounces.

“The increase was driven primarily by higher demand for jewelry and silverware and from silver’s use in solar technology,” said the report. “Demand for silver also rose from chemical catalysts, brazing alloys, and biocides. The increases in demand from these sectors offset weakness in demand from the photography and electronics sectors.”

Demand from jewelry and silverware, the largest sources of fabrication demand, rose to 266.5 million ounces in 2013, the highest since 2003. Weakness in silver prices and restrictions on gold imports into India helped boost silver jewelry demand during 2013.

Silver demand from the solar panel industry rose to 69.5 million ounces in 2013, up 46.4% from 2012, reversing a decline in demand from this sector during 2012. This demand is forecast to continue rising as the cost of producing panels declines and countries keep trying to add renewable power to their energy mix, CPM Group said.

Silver use in ethylene oxide catalysts, which is a fairly small but rapidly growing source of silver demand, rose to 15.3 million ounces during 2013, up 24.5% from 2012.

Silver demand from the electronics and batteries sector dipped 0.4% to 218.4 million ounces in 2013. The marginal decline was the result of reduced demand for personal computers and laptops, with consumers increasingly purchasing tablets, CPM Group said. However, demand from this source is forecast to rise in 2014, with much of the transition from personal computers to tablets having now already occurred. An increase in the volume of electronics produced is forecast to boost this silver demand to 221.7 million ounces in 2014.

Despite declining for 14 straight years, photographic demand remains the third-largest source of silver-fabrication demand, said CPM Group. This fell 8.6% last year to 82 million ounces.

Secondary Supply Falls While Mine Output rises

Total refined silver supply fell 2.4% to 971 million ounces in 2013, CPM Group said.

This decline was driven primarily by a sharp reduction in secondary supply, or recycled material, the consultancy said. This declined 19% to 230 million ounces, mainly the result of weaker silver prices.

Related Stories:

Meanwhile, mine production rose to a record high 741 million ounces in 2013, up 4.1% from 2012. 

“The top three producers of silver – Mexico, China, and Peru – contributed to roughly 65% of this growth,” CPM Group said. “Mexico registered the highest level of growth among all producers during 2013, with output rising 9.6 million ounces from the previous year. This increase in output accounted for 32.7% of the total increase in global silver mine supply.”

Total silver supply is forecast to reach 977.6 million ounces in 2014, up 0.7% year-on-year. Mine supply is expected to rise further as some large projects come on stream, as well as ramp-ups and expansion of existing mines. Secondary supply, however, is expected to decline further in 2014, albeit at a slower pace.

Most silver is a result of by-product of mining for other metals. Last year, 202 million ounces of supply came from primary silver producers, up 8% from 2012, CPM Group said.

Meanwhile, CPM Group calculated that the cash cost of primary silver production fell for the first time since 2002. The production-weighted average silver cash cost was listed at
$9.68 an ounce in 2013, down 3.3% from $10.01 in 2012.

CPM Group has produced annual reports on gold and silver since 1971, and annual surveys of the platinum group metals markets since 1981. The 2014 gold yearbook was released last month, and the PGM yearbook is scheduled for release on June 24.

By Allen Sykora of Kitco News; asykora@kitco.com



Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in precious metal products, commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.
kitco news

Precious Metal Charts

Click to see this Precious Metal chart
  1. 24h
  2. 30D
  3. 60D
  4. 6M
  5. 1Y

Interactive Chart