World Silver Survey forecasts surplus as fabrication slows.
A report produced for The Silver Institute by Thomson Reuters GFMS has described 2011 as a “roller-coaster ride” for the metal, with 2012 expected to offer a surplus of silver as fabrication slows but scrap and mine output remains strong.
The 18th annual World Silver Survey was created using international trade statistics, company reports and other public information, as well as interviews with key players in the silver industry.
The report offers that the silver market “will see another sizable fundamental surplus”, as mine output and scrap show further gains as a less favourable economic outlook reduces fabrication. The report has thus offered that 2012’s silver market will rely on investors to “absorb the vast bulk of this surplus”; meaning 2012 is set to be another year with a wide and varied trading.
The report describes 2011 as a roller-coaster year for silver, with a trading range of 64% and volatility at 61%, and added that the silver market “was not one for the faint-hearted”.
Towards the end of January last year silver, as well as gold, came under further pressure in when Chinese growth in the fourth quarter of 2010 surpassed expectations of 9.6%.
Then, from late January to late April, silver went on a bull run, posting “spectacular gains”, and at the end of April 2011 showcased a massive 59% gain since the end of the year to approach the US$50 (£31) per ounce mark.
With a view to silver jewellery and silverware, volumes fell 5.9% in 2011, with silver jewellery showing a greater decline in terms of volume due, in the main, to the economic difficulties facing the western markets.
The consumption of silver jewellery in key western markets “weakened modestly” in 2011, a noteworthy result given the jump in silver prices over the year. Figures show that some consumers shifted to less expensive silvers of a lower alloy, however many markets continue to report that silver remains “a more fashionable choice than gold”, especially among younger consumers.
The report also offers that silver’s image improved in some markets last year, most notably southern Europe, where previously silver “had little by way of precious connotations”.
The global total for silver jewellery production would have suffered “a sharper fall” last year had it not been for further growth in the Chinese market, which set a new record high.
Jewellery fabrication in Europe fell last year by 17% to 29.3 million troy ounces, while a few countries such as France enjoyed gains; most countries suffered losses, of which almost 90% was attributable to Italy.
Overall, worldwide jewellery production fell 4.5% to 159.8 million troy ounces, mostly due to a drop in consumption and “trade destocking” in the west, but also due to silver’s higher price. In the UK local consumption of silver jewellery weakened in 2011, although this did not reach the extent of the 30% drop in hallmarking, which itself was a reaction to lighter silver jewellery fabrication.
Plain sterling silver jewellery was described as “the chief casualty of the weaker export sector” last year as items were reduced in size – dropping to as low as 3g – to meet retail price points.
As a result, the mass production market for silver jewellery, of which Italy, India and the US are the biggest makers, experienced the heaviest losses, as silver was substituted for non-precious metals. In contrast, the top end of the silver market – especially branded silver jewellery – fared ”better”, as a rise in private and branded label jewellery helped to raise the profile and perceived value of silver jewellery in the domestic market. The World Silver Survey offered that this might have been a reaction to the rising gold price, which pushed many other jewellery brands and products out of the market for consumers.
Global silver mine supply has been steadily growing since the mid-1990s, and last year this continued, increasing by 10.2 million troy ounces to reach a ninth consecutive all-time annual high of 761.6 million troy ounces. Mexico, Peru and China were the top three largest producers of silver, while the top silver production companies were KGHM Polska Mied, BHP Billiton and Fresnillo.
Total mine fabrication fell 1.5% in 2011 to 876.6 million troy ounces, its second highest level since 2000.
Bar and coin investment remained robust in 2011, with bar investment growing 67%. In the UK, bullion export data for 2011 shows a rise of a marked 19% to 92.2 million troy ounces, mostly due to shipments going to India which more than doubled to 57.6 million troy ounces last year.
UK bullion imports fell a notable 25% to 106.5 million troy ounces, largely due to the 38.2 million troy ounce slump in shipment from Russia, which, the report says, “would certainly tie in with the story of lower government sales from that country”.
Silver’s annual average price increased in 2011, to $35.12 (£21.82) per ounce, exceeding the previous record of $20.98 (£13.03) as set in 1980. The 2011 price increased represented a year-on-year gain of 74%, making it “far stronger” than gold’s 28% price increase. In the final few weeks of 2011 silver experienced losses, and closed at $28.18 (£17.51) per ounce.
This article was taken from the May 2012 issue of Professional Jeweller magazine, out this week.