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Silver supply deficit reaches record high, could fuel price growth - Silver Institute report

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(Kitco News) -With silver prices holding above $25 an ounce, investors could finally be waking up to a massive imbalance in the precious metals supply and demand fundamentals as demand continues to outstrip supply, according to the latest report from the Silver Institute.

Wednesday, the Institute published its 2023 Annual World Silver Survey, and according to the research, silver saw its most significant market deficit on record, hitting 237.7 million ounces. Metals Focus, the firm behind the research, noted that the deficits in 2021 and 2022 have more than offset the cumulative surpluses of the previous 11 years.

In an interview with Kitco News, Philip Newman said that the market imbalance is driven by record demand and stagnant supply growth.

According to the report, global demand rose to a new record high of 1.242 million ounces, up 18% from the record levels seen in 2021. At the same time, the global silver supply totaled 1.004 billion ounces, roughly unchanged from the previous year. For 2023, supply is expected to grow by 2% to 1.024 billion ounces.

"Silver demand was unprecedented in 2022, and we don't say that to try and be sensational that is the only way to describe the market," Neman said. "The silver market has entered a new paradigm of deficits that kicked off in 2021."

Looking ahead, The Silver Institute and Metals Focus expect silver to post another "sizable deficit," even if it is down from last year's record highs. Analysts expect solid demand will create a market deficit of 142.1 million ounces in 2023.

"Which would be the second-largest deficit in more than 20 years," Newman said. "Even if some of the markets are not as strong compared to last year, demand is still expected to be very robust."

The report showed that industrial demand continues to dominate the marketplace, even if investor interest drives prices. The report said that industrial demand rose to a record high of 556.5 million ounces last year, up 5% from 2021. Metals Focus expects another record year, with industrial demand rising 4% to 576.4 million ounces.

Newman noted that silver's industrial demand is expected to remain healthy even as global economic activity faces the growing threat of a recession. He pointed out that the green energy transition and the evolution of electric vehicles will continue to drive demand for silver.

"The automatic sector isn't a new area of demand for silver, but there is a lot of exciting opportunity for demand to grow in this sector," he said. "The developing 5G networks aren't silver intensive, but they create opportunities for emerging tech to grow as it accesses more bandwidth. All that new tech will be run in part on silver."

Another important pillar of demand for silver is the jewelry market. The survey said that global jewelry demand hit a record high of 234.1 million ounces last year, up 29% from 2021. Although a potential recession could weaken jewelry purchases this year, the sector is still expected to consume 199.50 ounces.

Gold to remain a valuable safe-haven asset through 2023 - VanEck

Finally, looking at investment demand, Metals Focus said 2022 was also a record year for the physical bullion market. Demand was driven in part of India, which saw demand increase 188% last year. Newman noted that Indian consumers had such an insatiable appetite for silver that by the end of the year, 80% of the precious metal was transported into the country by air.

Newman noted that 55 million ounces of silver flooded into India in September, representing a peak for the market. Although Indian demand has dropped significantly since the fall, with about 500,000 ounces imported in February, Newman said the market outlook remains robust.

For 2023, physical investment demand for silver is expected to be 309 million ounces, down 7% from last year.

"Even if bar and coin demand is down from last year, it is still well above pre-pandemic levels," he said.

Looking at prices, Newman said that while industrial demand is expected to provide a floor for prices, it will still be driven by investment demand, which could wane through the second half of the year.

"Metals Focus' forecasts see the silver price move broadly sideways over the next few months, before suffering liquidations in the second half of the year. By Q4, we expect the price will trade in the low $18s. This will result in a full year average of $21.30, 2% lower y/y," the analysts said in the report.

The relatively neutral outlook comes as silver prices hold solid support above $25 an ounce. May futures trading at $25.34 an ounce, up 0.30% on the day.

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 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.