THE SILVER MARKET IN 2015

THE SILVER MARKET IN 2015 Erica Rannestad Senior Analyst, Precious Metals Demand The Silver Institute - 2015 Interim Report November 17, 2015 GLOB...
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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.

DISCLAIMER The information and opinions contained in this presentation have been obtained from sources believed to be reliable, but no representation, guarantee, condition or warranty, express or implied, is made that such information is accurate or complete and it should not be relied upon as such. Accordingly, Reuters Ltd accepts no liability whatsoever to the people or organizations attending this presentation, or to any third party, in connection with the information contained in, or any opinion set out or inferred or implied in, this presentation. This presentation does not purport to make any recommendation or provide investment advice to the effect that any gold related transaction is appropriate for all investment objectives, financial situations or particular needs. Prior to making any investment decisions investors should seek advice from their advisers on whether any part of this presentation is appropriate to their specific circumstances. This presentation is not, and should not be construed as, an offer or solicitation to buy or sell gold or any gold related products. Expressions of opinion are those of Reuters Ltd only and are subject to change without notice.