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Metals Focus: U.S. Silver Industrial Demand Strong Despite Rising Comex Stocks

Kitco News

(Kitco News) - Comex silver warehouse stocks have hit their highest level in 23 years, yet industrial demand for the metal remains strong, says Metals Focus.

As of a late-Tuesday report, the consultancy said that CME Group Comex silver warehouse stocks stood at around 248 million ounces, their highest since late 1994. They have risen from some 183 million ounces at the start of 2017.

“This in turn might suggest that U.S. silver demand, in aggregate, has been struggling,” Metals Focus said. “This is certainly true for physical investment, which has been very weak, but industrial offtake in the U.S. has generally performed well.”

Analysts point out that warehouse stocks reflect demand for “999s purity silver,” the minimum standard for delivering 1,000-ounce bars onto the Comex.

Overall, retail and coin demand for silver has been weak, Metals Focus said. So far in January, U.S. Mint Eagle silver coin sales stand at 3.2 million ounces, compared to 5.1 million for last January.

“Looking ahead, we believe that U.S. coin and bar demand may edge higher this year, but that is against 2017’s historically depressed total,” Metals Focus said. “This, in isolation, suggests that Comex silver stocks may remain at current levels or ease back a fraction over the coming 12 months.”

Meanwhile, industrial demand for silver in the U.S. has remained “relatively upbeat,” the consultancy said. Aside from brazing alloys, most other areas of industrial consumption require “9999s purity silver.”

“As a result, premiums that 9999s silver can attract in the U.S. have generally been firmer -- over the past year or so at least -- compared with 999s premiums,” Metals Focus said.

Some of the reasons for the strength of 9999s silver demand include strong photovoltaic and automotive demand, Metals Focus said.

“In terms of the former, the strength in the PV market has to some extent been reflected in rising U.S. silver powder exports,” the consultancy explained. “Available trade data for January to November points to a 14% year-on-year rise in the reported volume of these shipments.”

In 2018, U.S. powder exports could ease, but this would be mainly due to the comparison against an “exceptionally strong” performance in 2017, Metals Focus said.

“In other words, taking a longer-term view, U.S. powder demand will still remain at healthy levels,” Metals Focus said. “Overall, therefore, the combination of a modest lift in coin and bar demand, together, with a drop in industrial offtake, should see total U.S. silver fabrication demand remain broadly unchanged in 2018.”

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