The silver market saw record demand in 2015, with the jewellery, coin and bar, and photovoltaic sectors posting new highs, helping to boost total silver demand to 1,170 Moz last year. Overall silver supply to the market was lower, led by the continued weakness in silver scrap sales. Last year’s supply and demand scenario led to the third successive annual silver market deficit, reaching 129.8 Moz, more than 60% larger than 2014 and the third largest on record. These findings, and other components of the silver market, are discussed in World Silver Survey 2016, released last week by the Silver Institute and produced on its behalf by the GFMS Team at Thomson Reuters (GFMS).
Globally, silver jewellery fabrication increased for the third consecutive year to post a fresh high at 226.5 Moz. This increase was largely achieved on the back of an impressive 16% rise from both India and Thailand, while North America posted a 5% annual increase. These gains were partially offset by a sizable contraction in Chinese jewellery offtake. Total silverware fabrication enjoyed its third successive annual rise to an estimated 62.9 Moz, a ten-year high.
The largest component of physical silver demand, industrial applications, which accounted for 50% of total physical silver demand last year, was 4% lower, totalling 588.7 Moz. This drop was largely due to weaker fabrication demand in developing countries and a stagnant global economy. On a regional basis, modest increases in industrial demand were posted in the US and Japan, the second and third largest sources of industrial demand, respectively. Electrical and electronics use declined by 10% last year to 246.7 Moz, due to slower economic growth in developing countries and the continued weakness in computer sales.
There were several highlights within the industrial segment. Silver demand for photovoltaic applications rose 23% in 2015 to 77.6 Moz, marking the second consecutive year of increases in this sector, driven by strong growth in Chinese solar panel installations. Silver demand for ethylene oxide (EO) grew an impressive 103% to 10.2 Moz. GFMS estimates that 137.5 Moz of silver resided in EO plants around the world at year-end 2015, equivalent to 16% of last year’s silver mine production.
Silver’s use in brazing alloys and solders fell by 5.0 Moz and photography demand slid by 4% last year. The pace of decline in photography slowed considerably, to its lowest rate since 2004, as digital technology in the photography industry approaches maturity.
Identifiable investment, which includes physical bar investment, coins and medals, and exchange traded product (ETP) build, climbed 16% to a near record high in 2015. Silver coin and bar investment surged 24% to reach 292.3 Moz, the highest annual demand level in GFMS’ records, overtaking the previous high in 2013. Coin and bar demand accounted for 25 percent of total physical demand in 2015, the highest market share on record and up from just 5% a decade earlier. Silver coin and medal demand amounted to 134.1 Moz of demand last year due to unprecedented growth in several key markets, notably the United States and India.
Holdings in silver-backed ETPs declined by 17.7 Moz in 2015, finishing the year at 617.8 Moz. However, demand in this investment category has rebounded with ETPs reaching 640.0 Moz at the end of the first quarter 2016.
An extremely challenging year for nearly all commodities, along with a continued slowdown in Chinese economic growth and a stronger US dollar, led to a lower average annual silver price of $15.68/oz in 2015. However, this lower price environment helped to boost physical demand, particularly as long term investors viewed lower prices as key entry points in expectation of future price appreciation.
Global silver mine production growth slowed to 2% in 2015 and reached a record 886.7 Moz. The mine production growth was attributable to stronger output in Peru, Argentina, Russia and India, while Canada, Australia and China had lower mine production, with the latter decreasing output by 3%. Primary silver mine production grew 5%, and accounted for 30% of global silver mine supply. The overall slowdown in mine production last year is expected to continue.
Primary silver co-product cash costs plus CAPEX fell by 11% to $11.74/oz. This drop was driven by weaker local currencies, aggressively lower CAPEX, and lower fuel prices. The producer silver hedge book grew by 7.8 Moz in 2015, as fresh hedging more than offset maturing contracts.
Scrap supply was significantly down by 13% at 146.1 Moz, the lowest volume level recorded since 1992 and the fourth consecutive year of decline. Behind the decline were fewer collectors active in the market and some holding back material awaiting higher prices. Government sales of silver were again essentially non-existent.
Picture: What many don’t know is that silver is a primary ingredient in the photovoltaic cells that catch the sun’s rays and transform them into energy. 90 % of crystalline silicon photovoltaic cells (the most common cell) use silver paste and close to 70 Moz of silver are projected for use by solar energy this year.