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HSBC: Physical Demand, Less Supply To Support Silver In 2015; Dollar, Weak Commodities To Cap Upside

Thursday December 11, 2014 8:48 AM

(Kitco News) - HSBC is retaining its average price forecast of $17.65 an ounce for silver in 2015 – meaning a rise from current prices – although the bank looks for rallies to be limited by a stronger U.S. dollar and weaker commodities generally.

However, HSBC also looks for support to come from strong physical demand, jewelry and coin purchases, plus tighter mine and scrap supplies.

HSBC said it looks for silver to trade in a range of $15.25 to $21.25 in 2015. The bank also left its 2016 forecast unchanged at $20.50, introduced a 2017 forecast of $21 and left its “long-term” outlook at $24.

“After sharp increases in 2014, mine supply should decrease from both primary and by-product output in 2015,” HSBC said. “Low prices are discouraging scrap recycling, as are difficulties associated with collection. Government sales appear to have ceased altogether.”

Meanwhile, growth in physical demand will help support prices on any downswings, HSBC said.

“Greater industrial silver consumption is an important component in our analysis for higher prices in 2015,” the bank said. “HSBC’s moderately positive economic forecasts, along with the wide-ranging uses for silver, imply growth in industrial demand for silver in 2015. Jewelry and coin demand is buoyant in Asia and the U.S., in line with economic recovery.”

However, investment demand such as exchange-traded funds may be soft and cap rallies, HSBC said.

“Silver ETFs have remained remarkably solid despite constant liquidation in the gold ETFs, but they are growing only slowly,” HSBC said. “Positions on the Comex remain net long but gross short positions are considerable. USD (U.S. dollar) strength, disinflationary trends, and weak commodity prices, notably for oil, are reflected in sluggish investor demand for silver.”

HSBC looks for silver ETF holdings to rise by a modest 15 million ounces next year. So far this year, they are up 15 million as well to 638 million ounces, comparable to around three-quarters of annual mine output, HSBC said.

HSBC said it looks for the global silver market to swing to a deficit of 11 million ounces in 2015 from a tiny surplus of 3 million ounces in 2014. “A small but persistent deficit should limit further price declines,” the bank said.

Mine supply is likely to fall in 2015 after years of steady increases, the bank said. Mine production rose 37% from 2003 to 2013, before another increase this year. For 2015, HSBC looks for mine production to slip to 850 million ounces from an estimated 868 million in 2014.

Silver scrap supply is seen falling to 155 million ounces from 163 million this year. It had been as high as 259 million back in 2011.

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“Industrial silver consumption, which accounts for more than half of total demand, is likely to rise in 2015 and help support prices,” HSBC said. “Coin demand is buoyant and jewelry consumption rising, notably in Asia and the U.S., as demand is rising in response to low prices.”

Industrial demand is seen rising to 557 million ounces from 530 million in 2014. Jewelry and silverware consumption is forecast to rise to 266 million from 235 million this year. The 2015 forecast for total demand, including investment, is listed at 1.036 billion ounces, compared to 1.028 billion in 2014.

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.
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