Silver may post moderate gains in 1st half, demand strong

Mumbai-India (Feb 25)   Silver may witness moderate gains in first half of 2014 as US Fed tapering and slowdown in China will impact market sentiments in the precious industrial metal, according to Nirmal Bang Commodities & FX Year Book 2014.

Silver prices have fallen sharply from $32/ounce to $18.50/ounce, a correction of more than 40% in a year. Silver has higher beta than gold, thus in line with correction in gold, silver too crashed in 2013. The major fundamental reasons for correction in silver were massive surplus, diminishing demand prospects and correction in gold prices. Silver market is in a major surplus since the start of 2012 and it continues to surge. Surplus in silver has been growing at a rapid pace since the start of 2012. The total cash cost of silver mines is expected to be around $9/ounce. But since only 23% total silver production comes from direct silver mine, it’s unimportant.

Silver fabrication demand is expected to witness moderate recovery in 2014 due to slowdown in economic slowdown in China. Silver fabrication demand has been weak in 2011 and 2012 due to higher prices after attaining a peak in 2010. Positive manufacturing data from across the globe may lead to increased fabrication demand.

Curbs on India gold imports helped raise demand for silver in jewellery indsutry. India's imports rose to 4073 tons from January to August 2013 as against total imports of 1921 tons in 2012. Jewellery fabrication demand is expected to rise 6% in 2014.

Industrial demand for silver which constitutes 52% or more of total fabrication demand is expected to move up in 2014. It was one of the factors that helped provide support for silver prices in 2013. Solar industry consumed 46 mn ounces of silver in 2012, up from 19 mn in 2008.

Investment demand for silver is strong as holdings in Silver ETFs dropped only 5% in 2013. Nirmal Bang does not envisage any major redemption in silver ETFs, but sharp spike in holdings is ruled out in 2014.

Source: Commodity Online