THE SILVER MARKET IN 2015 Erica Rannestad Senior Analyst, Precious Metals Demand
The Silver Institute - 2015 Interim Report November 17, 2015
GLOBAL GDP GROWTH 12
Developing Countries
10 Advanced Economies
% Change
8 6 4 2 0 -2 -4 2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
Source: Oxford Economics, IMF
GROWTH IN PHYSICAL SILVER DEMAND 40
Developing Countries Advanced Economies
30
% Change
20 10 0 -10 -20 -30 2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
Source: GMFS, Thomson Reuters
WORLD SILVER SUPPLY AND DEMAND Moz
2011
2012
2013
2014
2015f
%∆2014
%∆2011
755.9
787.5
832.0
865.0
867.2
0.3%
14.7%
1,041.7
1,003.3
996.5
1,049.1
1,014.4
-3.3%
-2.6%
Jewelry & Silverware
235.2
229.2
276.8
285.2
280.0
-1.8%
19.0%
Coins & Bars
216.0
141.7
226.4
203.5
206.5
1.5%
-4.4%
Industrial Fabrication
628.3
596.9
601.7
595.2
570.7
-4.1%
-9.2%
1,079.5
967.8
1,104.8
1,083.9
1,057.1
-2.5%
-2.1%
Physical Surplus/Deficit
-37.9
35.5
-108.3
-34.8
-42.7
na
na
Annual Average Silver Price $/oz
35.12
31.15
23.79
19.08
15.51
-18.7%
-55.8%
Mine Production Total Supply
Physical Demand
Source: GFMS, Thomson Reuters
THE SILVER MARKET IN 2015 • SILVER PRICES • DEMAND • SUPPLY • INVESTMENT • PRICE OUTLOOK
US DOLLAR SILVER PRICES US$/oz 60
50
Average Price
Average y-o-y change
Intra-period change*
2014
19.05
-20.0%
-21.5%
Jan – 13th Nov 2015
15.91
-18.3%
-8.4%
US$/oz
40
30
20
10
0 Jan-06
Jan-07
Jan-08
Jan-09
Jan-10
Jan-11
Jan-12
Jan-13
*intra-period change refers to difference between the last business day and the first business day of the year
Jan-14
Jan-15
Source: Thomson Reuters Eikon
GOLD/SILVER RATIO, 2004 – 2015 TO-DATE (BASIS WEEKLY AVERAGE PRICES) 90
83.4 77.7
80 70
Average 57.9 60 50 40
Jan 2nd – Nov 13th 2015 = 73.7 30 20 2006
31.7 2007
2008
2009
2010
2011
2012
2013
2014
2015
Source: Thomson Reuters Eikon
THE SILVER MARKET IN 2015 • PRICES • DEMAND • SUPPLY • INVESTMENT • PRICE OUTLOOK
WORLD PHYSICAL SILVER DEMAND FORECAST ANNUAL CHANGES: 2015F LESS 2014 (Moz) 10 5
3.0
0.4
Million ounces
0
-1.4
-5
-5.6
-10 -15 -20 -25
-23.2
-30 Coins & Bars
Source: GFMS, Thomson Reuters
Jewelry
Silverware
Photography
Industrial Fabrication (minus Photography)
INDUSTRIAL FABRICATION FORECAST ANNUAL CHANGES: 2015F LESS 2014 (Moz) 11.0
10 5
2.6
Million ounces
0 -5
-5.9
-10 -15
-12.9
-20
-18.1
-25 -30 Electronics
Brazing Alloys & Solders
Solar
Ethylene Oxide Catalyst
Other Industrial Applications
Source: GFMS, Thomson Reuters
SOLAR DEMAND - SILVER POWDER PRODUCTION 80.0 70.0
68%
China
United States 3%
13%
Japan 12%
39%
60.0 60%
Moz
50.0
52%
43%
40.0 30.0 20.0
48% 32%
39%
45%
45%
2013
2014
10.0 0.0 2011
2012
2015F
Source: GFMS, Thomson Reuters
GLOBAL COIN SALES HIT RECORD QUARTERLY HIGH IN Q3 35
Other Asia Europe N America
30
Coin Sales (Moz)
25 20 15 10 5 0 08-Q1
09-Q1
10-Q1
*Excludes Commemorative and China Mint coins
11-Q1
12-Q1
13-Q1
14-Q1
15-Q1
Source: GFMS, Thomson Reuters – Quarterly Coin Sales Survey
WORLD PHYSICAL SILVER DEMAND FORECAST ANNUAL CHANGES: 2015F LESS 2014 (Moz) 17.0
20
10.4
10
Million ounces
1.6 0
-0.6
-10
-20
-22.9
-30
-32.3 -40 China
India
North America
Europe
Japan
ROW
Source: GFMS, Thomson Reuters
DEMAND SUMMARY
• •
Weakening growth in China will continue to weigh on physical demand The growth seen in coin demand is not expected to repeat, at least to the extent seen in 2015, next year
•
Jewelry fabrication is expected to recover, but will largely hinge on consumption in China
•
The continued shift toward smaller mobile devices and away from larger desktop computers will remain intact, weighing on electronics demand growth in the medium term
THE SILVER MARKET IN 2015 • PRICES • DEMAND • SUPPLY • INVESTMENT • PRICE OUTLOOK
MINE PRODUCTION WINNERS AND LOSERS, 2015F VERSUS 2014
Source: GFMS, Thomson Reuters
TOTAL CASH COSTS NET OF BYPRODUCTS
TOTAL CASH COST ON A COPRODUCT BASIS + CAPEX
WORLD SILVER SCRAP SUPPLY ROW China North America
Moz
300
India Europe Share of Total Supply
30%
250
25%
200
20%
150
15%
100
10%
50
5%
0
0% 2006
2007
2008
2009
2010
2011
2012
2013 2014 2015f Source: GFMS, Thomson Reuters
OUTSTANDING DELTA ADJUSTED PRODUCERS HEDGE POSITION 120
Million ounces
100
80
60
40
20
0 2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014 2015F
Source: GFMS, Thomson Reuters
SUPPLY SUMMARY
•
We estimate that mine supply peaked in 2015 and will trend lower in the foreseeable future
•
Supply from scrap is expected to stabilize around 2015 levels in the medium term
•
The hedge book remains at low levels and hedging is not forecast to return to the market in strength
•
Government sales are not expected to be a feature of the market in the years ahead
•
Declining total supply is expected to be a key driver of annual deficits in the silver market going forward
THE SILVER MARKET IN 2015 • PRICES • DEMAND • SUPPLY • INVESTMENT • PRICE OUTLOOK
WORLD SILVER IDENTIFIABLE INVESTMENT* VOLUME AND VALUE 250
8
Total Identifiable Investment in US$ Bn (RHS) Coins & Bars
200
7
ETFs
150
5
100
4 3
50
US$ Billion
Moz
6
2 0
1
-50
0 2005
2006
2007
2008
2009
2010
*Identifiable Investment is the sum of bars, coins and ETFs.
2011
2012
2013
2014 2015F
Source: GFMS, Thomson Reuters
INVESTORS’* POSITIONS IN COMEX SILVER FUTURES & OPTIONS Short
60,000
Long
50
Net Positions
45
Silver Price
40
40,000
35
20,000
30
0
25 20
-20,000
15
-40,000
10
-60,000 -80,000 2008
US$/oz
Comex positions (contracts, thousands)
80,000
5 0 2009
2010
•Managed money long and short positions
2011
2012
2013
2014
2015
Source: CFTC data via Thomson Reuters Eikon
ABOVE GROUND STOCKS 2500
Industry Government
*
Exchange 2000
ETFs
Million Ounces
Custodian Vaults 1500
1000
500
0 2005
2006
2007
2008
2009
2010
* As of end-Q3. Custodian vault figures exclude ETF holdings
2011
2012
2013
2014
2015
Source: GFMS, Thomson Reuters
THE SILVER MARKET IN 2015 • PRICES • DEMAND • SUPPLY • INVESTMENT • PRICE OUTLOOK
PRICE OUTLOOK
•
The slowdown in China’s economy has had a significant impact on silver offtake in 2015, a theme expected to persist in 2016, albeit to a lesser extent.
•
While coin demand is expected to remain elevated in 2016, it may not hit fresh record highs.
•
Mine supply is expected to decline in the long run and we believe that 2016 will be the beginning of this protracted decline. Meanwhile, scrap levels are expected to stabilize.
•
Above ground stock levels are expected to dwindle going forward amid a chronic shortfall of supply against physical demand. This will provide support to prices in the long run.
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