Silver Supply Crunch To Push Prices Higher
London (July 31) One U.K.-based research firm expected silver prices to recover over the next couple of years due to a supply crunch; however, given the recent decline in metals prices, they now say this recovery might come sooner.
Oversupply remains one of the key factors depressing silver prices, said Simona Gambarini, commodities economist for Capital Economics, in a research note Friday.
“We have argued before that silver mine production had reached its peak and was going to decline over the next few years. However, the recent slump in precious and industrial metal prices might accelerate this process,” she noted.
According to Gambarini, the firm now anticipates a 1% decrease in silver output this year, which would push prices up to $18.70 an ounce. Based on Kitco’s spot silver price on Friday, which stood at $14.80 as of 12:24PM EDT, that would mean they expect about a 26% increase in the metal’s price from now until the end of the year.
Because the majority of mined silver comes as a by-product from industrial metal mines, Gambarini explained that silver supply is closely tied to copper, gold, zinc and lead prices, which have been in a downtrend.
“As a result, silver as a by-product could start to dry up soon, leading to a much sharper slowdown in output than we had originally anticipated,” she noted.
Gambarini also expects primary silver supply to fall, noting that the latest data from the top 15 primary silver mines actually showed a 3% year-over-year decline for the first half of 2015.
“What’s more, the output from Mexico and Peru, the two largest silver producers accounting for 36% of total output, has also started to decline,” she added.
Gamborini expects cuts to capital-expenditure spending across industrial and precious metals to start taking its toll on silver supply, which will ultimately push the metal’s prices higher.