· Investment demand records healthy growth in 2019, while industrial demand declines as trade wars impact orders across the supply chain.
· GFMS team at Refinitiv publishes annual Silver Market Review 2019, which includes provisional supply and demand estimates for 2020.
After rising to a five-month high, the silver price experienced a calamitous fall in March, as precious metals got caught up in a broader market sell-off amidst the deteriorating COVID-19 virus outbreak according to the annual Refinitiv GFMS annual Silver Market Review 2019.
As a result, silver lost 30% of its dollar value in the first three weeks of the month, trading at around the $12/oz level, the lowest in more than ten years.
Cameron Alexander, Manager of Precious Metals Research, Refinitiv comments: “We expect prices to recover from current lows, driven by bargain hunting, before moving higher later in the year once the market hysteria calms down and safe haven demand kicks in, taking the silver price to an annual average of $15.75/oz this year, down by 3% year-on-year.”
Total physical demand was down by 2% last year to 1,035.1 Moz (32,196 t), driven lower by a drop in silver used in industrial applications and jewellery, although this was slightly offset by a pick-up in retail investment. Industrial fabrication fell by 4% to an estimated 554.9 Moz (17,259 t), as demand was dragged down by a slowdown in the global economy and an escalation in the trade conflict between the United States and China.
The largest decline in volume terms was recorded by the electronics and other industrial segments, where demand for silver slipped by 8.6 Moz (267 t) and 5.3 Moz (164 t), respectively. Silver demand from the ethylene oxide industry saw a sharp drop of 28% last year, to 3.9 Moz (122 t), largely on the back of a marked decline in the number of ethylene oxide facilities commissioned over the course of the year. Demand from the photovoltaic (PV) sector recorded its second consecutive fall in 2019, dipping by 3% to 74.2 Moz, owing largely to the ongoing thrifting of silver in PV modules, even as global photovoltaic installations continue to rise.
Demand from the jewellery sector slipped by 1% to 210.0 Moz (6,532 t), driven by lower offtake in Asia, particularly in China, where jewellery fabrication tumbled by 11% to the lowest level since 2003. While structural factors and a shift in consumer preferences had been weighing on the domestic market, the economic slowdown and trade tensions put a major drag on jewellery demand last year. Meanwhile, Indian demand rose slightly to a record high level, driven by strong demand in the first half of the year thanks to increased wedding days and a lower silver price. Silverware fabrication posted a 3% year-on-year drop to 59.2 Moz (1,840 t), driven by lower offtake in India.
The silver price averaged $16.21/oz in 2019, up by 3% from the previous year, with some interesting shifts observed during the year. The performance for most of the first half was rather disappointing, with the dollar price losing 6% in the first five months, plunging below the $15/oz level in April. By contrast, the second half of the year saw the silver price soar by 18%, breaking through the $19/oz mark in early September for the first time in nearly three years.
On the supply side, mine production declined by less than 1% to an estimated 853.7 Moz (26,552 t), with losses in South America and Oceania being slightly offset by higher output in Europe and North America. Scrap supply rose to a five-year high of 160.3 Moz (4,986 t), up by 6% from the previous year, with higher prices stimulating scrap flows across the major markets.
Looking ahead
Cameron concludes: “We expect positive inflows into silver ETPs to continue this year. Demand for bars and coins is forecast to rebound by 24%, partly driven by a buying frenzy across all the major markets in Q1 as the silver price plunged to its lowest in more than ten years, as well as a renewed investor interest in safe havens later in the year once global financial markets stabilise.
“Industrial fabrication is set to take a hit this year, with losses expected across all the major sectors, with the rapid spread of COVID-19 disrupting supply chains globally and threatening to drag the global economy into downturn. Similarly, demand from the jewellery and silverware sectors is expected to remain poor.”
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