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GFMS: Silver Market To Post Fourth Straight Supply Deficit In 2016

(Kitco News) - The global silver market is expected to post its fourth consecutive supply deficit in 2016, this time to the tune of 52.2 million ounces, said the GFMS team of Thomson Reuters in its Interim Silver Market Review.

Silver Market To Post Fourth Straight Supply Deficit In 2016The consultancy forecast a decline in both supply and demand. The forecast deficit is the smallest since a 2.9 million surplus in 2012.

Johann Wiebe, senior analyst with GFMS, outlined the consultancy’s findings Wednesday night at the annual silver-industry dinner hosted in New York by the Silver Institute.

“While such deficits do not necessarily influence prices in the near term, multiple years of annual deficits can begin to apply upward pressure to prices in subsequent periods,” GFMS said.

The 2016 deficit becomes 185.5 million ounces, equal to roughly nine weeks of global demand, when including the impact of an expected 71.4 million ounces of net inflows into global exchange-traded-products and a build of 61.9 million ounces through October in derivatives exchange inventory, GFMS said. Above-ground stocks, including ETPs and exchange inventories, are estimated to reach 2.64 billion ounces in 2016, a 15% increase from the previous year.

Through Nov. 11, silver prices this year averaged $17.23 an ounce, a gain of 9.9% from the same period in 2015, the consultancy said. The GFMS team calls for silver prices to average $17.15 for the full calendar year, a 9.4% increase over the 2015 average.

Total silver supply is forecast to fall 3% to just over 1 billion ounces in 2016, GFMS said.

Mine production is forecast to hit 887.4 million ounces, which would be almost 6 million lower than 2015 but the second-highest year of production on record. “Healthy increases in primary silver mine production, particularly in Peru, are being partially offset by losses in silver output from lead/zinc and gold mines,” GFMS said.

Following four years of consecutive declines, scrap supply is contracting only marginally, this time by half a million ounces, compared to 2015, GFMS said. This is a marked change from the 29 million-ounce annual average decline recorded over the previous four years. “Higher local silver prices have been contributing to the improved sentiment,” GFMS said.

The consultancy sees net dehedging in 2016 of 20 million ounces.

Meanwhile, GFMS looks for total silver demand to decline to 1.064 billion ounces from 1.17 billion in 2015.

Silver bullion coin and bar sales are expected to contract 24% to 222 million this year, GFMS said. Bullion silver coins are seen coming in at 122.7 million ounces, which is 7.9% below last year’s record of 133.2 million.

“The drop is unsurprising given the strong increase recorded in the prior year, when investors entered the market en masse to bargain hunt following the silver-price decline during the second half of last year,” GFMS said.

Physical bar demand is expected to contract by 38% this year to 99.3 million ounces, driven by a lackluster Chinese economy and weak consumer sentiment in North America, GFMS said. Demand in Europe, on the other hand, should improve by 14% to 14.5 million ounces on the back of Brexit fears and a rising silver price. Physical bar and coin demand should account for 21% of physical demand in 2016, down from 25% in 2015 and up from just 5% 10 years ago, GFMS said.

Meanwhile, total industrial demand for silver is forecast to decline by 1% to 585.1 million ounces, accounting for 55% of physical demand in 2016, GFMS said. A number of industrial sectors are expected to record minor losses in silver consumption this year due to “challenging economic backdrops” in various countries and continued thrifting and miniaturization trends in various electronic applications, GFMS said.

A bright spot, however, is silver demand from the photovoltaics industry, which is forecast to increase by 11% to a record high of 83.3 million ounces this year, GFMS said. The rise is driven by global solar installations, mostly from China, GFMS said.

“Solar will make up 14% of total industrial demand this year, which is flat compared to 2015, but significantly up from just 1% a decade ago,” GFMS said.

Jewelry fabrication is forecast to drop 8% to 208.5 million ounces in 2016.

“A decline in discretionary spending, thrifting, lower economic growth and a higher silver price have all contributed to the overall decline,” GFMS said. “In China, demand for high-purity silver bracelets has been rising, however. Competition for low-end silver jewelry between smaller fabricators and branded outlets has intensified, weighing down on jewelers’ profitability, and overall jewelry demand in Asia is expected to contract by 10% this year. North America mainly imports its silver jewelry, demand for which is forecast to slow this year, partially explained by continued trends towards yellow-colored jewelry.”

North American domestic fabrication for jewelry is to come in at 28.9 million ounces, a decline of 6% year-on-year, GFMS said.

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

 

 

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