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Silver demand to surpass 1 billion ounces this year, hitting a 6-year high – Silver Institute

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(Kitco News) - The global silver market will see demand reach 1.29 billion ounces this year, the first time it has breached 1 billion since 2015, according to the latest report from the Silver Institute.

Wednesday, in its interim market report, the Silver Institute said that silver demand had seen broad-based growth through 2021, with industrial demand leading the way.

"The recovery in silver industrial demand from the pandemic will see this segment achieve a new high of 524 million ounces (Moz). In terms of some of the key segments, we estimate that photovoltaic demand will rise by 13% to over 110 Moz, a new high and highlighting silver's key role in the green economy," said analysts at Metals Focus, who conducted the latest research on behalf of the Silver Institute.

The report also noted robust investment demand with interest in physical bullion expected to increase 34% or by 64 million ounces to 263 million ounces, representing a six-year high.

"Growth began with the social media buying frenzy before spreading to more traditional silver investors. Indian demand reflects improved sentiment towards the silver price and a recovering economy. Overall, physical investment in India is forecast to surge almost three-fold this year, having collapsed in 2020," the analysts said.

Paper demand for silver is also expected to increase in 2021. Holdings in silver-backed exchange-traded funds are projected to rise by 150 million ounces.

"During 2021 and through to November 10, holdings rose by 83 Moz, taking the global total to 1.15 billion ounces, close to its record high of 1.21 billion ounces which occurred on February 2, at the height of the social media storm," the analysts said.

The report said that silver jewelry and silverware fabrication is expected to see partial recoveries from the 2020 depressed levels, growing by 18% and 25%, respectively.

"Both markets will benefit from a marked upturn in all key countries, especially in India as the economy and consumer sentiment have bounced back more quickly than expected, and as restrictions ended in time for the all-important wedding and festive season," the analysts said.

Looking at the supply side, Metals Focus said that mine production is forecasted to increase by 6% to 829 million ounces.

"This recovery is largely the result of most mines being able to operate at full production rates throughout the year following enforced stoppages in 2020 due to the pandemic. Those countries where output was most heavily impacted last year, such as Peru, Mexico and Bolivia, will have the biggest increases," the analysts said.

Looking at the market's supply/demand fundamentals, Metals Focus looks for silver to see a modest supply deficit of 7 million ounces. "This will mark the first deficit since 2015," the report said.

The optimistic demand outlook comes as silver prices see a renewed uptrend. December silver prices last traded at $25.215 an ounce, up 1% on the day. Economists have noted that precious metals have seen new bullish momentum after consumer inflation rose to its highest level in 31 years.

One billion ounces is just the start - Hecla CEO

Phillip Baker, CEO of Hecla Mining, said in a telephone interview with Kitco News that he expects silver prices to remain in a strong uptrend as investors look for inflation hedges.

"Right now, we are seeing the consequences of trying to smooth out our economic system and avoid crisis," he said. "The result is higher inflation and it is doesn't seem to be very transitory."

Tuesday, Hecla, which represents 40% of all silver mined in the U.S., rang the closing bell on the New York Stock Exchange. This year the company is also celebrating its 130th anniversary.

Baker added that he expects silver demand to continue to grow and sees the potential of a 2-billion ounce market in the next 30 years.

"There's no doubt that with the desire to have clean energy, the demand for silver is going to continue to increase and increase probably at a much faster rate than what we've seen in the past," he said. "With all that demand, silver is more expensive."

To put the demand growth into perspective, Baker said that the world would need to see seven to ten new mines the equivalent size of its Green Creek in Southeast Alaska. The mine is forecasted to produce about 10 million ounces of silver this year. It is one of the largest primary silver producers in the world.

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