GFMS: Global Silver-Market Surplus Increasing In 2018

New York (Nov 16)  The surplus in the global silver market will rise to 35.3 million ounces in 2018, an increase from 2.4 million in 2017, the GFMS team at Refinitiv reported late Thursday.

Johann Wiebe, lead analyst for the GFMS team, reported on the GFMS/Silver Institute Interim Silver Market Review during the annual silver industry dinner hosted by the Silver Institute. The report includes provisional supply and demand forecasts for 2018.

The GFMS team forecasts silver will average $15.73 an ounce this year. As of Nov. 10, the average was $15.89, which was 7% lower than $17.05 for last year.

Following a drop of 1.5% in 2017, total silver supply is forecast to rise by 0.3% to 998.4 million ounces, GFMS said. The increase is due to growth in mine supply, which is forecast to grow to 865.5 million ounces from 852.1 million a year ago, thereby reversing a two-year decline. Scrap supply is expected to ease by 1%, according to the GFMS report.

Global physical demand is expected to contract by 3% to 963 million ounces in 2018, compared to 992.8 million a year ago, according to the report. This would be the third consecutive decline. Bar and coin demand will be the primary driver, contracting 12.2% to 124.8 million ounces.

New physical coin demand has been weak this year, particularly in the U.S. during the first half of the year, as investors relied on the secondary market with older-dated coins, GFMS said. Wiebe reported that physical bar and coin demand in other regions has also been “disappointing,” contracting as investors remained on the sidelines awaiting higher price volatility.

Demand for jewelry and silverware is forecast to fall 0.6% to 252.9 million ounces due to softer demand in India and China.

“In the case of the former, the disappointing monsoon season did not result in the expected increase in jewelry purchases, whereas for the latter a generally weakening economic climate is hampering further purchases,” GFMS said. “The decline in Thai jewelry fabrication has slowed this year with continued strong demand from the United States.”

The use of silver in a wide range of industrial applications is accounting for some 60% of total silver demand in 2018, GFMS said. Analysts foresee a modest decline this year of 1.8% to 585.4 million ounces.

“Demand for silver used in the photovoltaic sector contracted on the back of an increasingly more challenging global environment,” GFMS said. “This has been particularly driven by government interventions at the two largest economies of the world. Despite imposed import restrictions by [U.S.] President Trump, it is particularly changes in China that are setting the tone for slower growth. The Chinese government introduced legislation to reduce solar subsidies in order to slow growth after new installations significantly exceeded its 13th five-year plan budget.”

The pace of the decline of silver used by the photography sector has slowed; still, this contracted by another 3.4% to 39.5 million ounces. Demand for electronic and electrical applications, however, continued to drive what GFMS termed “robust growth,” expanding by 2.8% to 249.6 million ounces.

Net holdings of silver by exchange-traded products have contracted by around 500 million ounces to date, following several annual increases in the last decade, Wiebe reported. Meanwhile, exchange inventories have increased for the third consecutive year, particularly on Comex, which represents approximately 76% of total, rising by 52.5 million ounces, GFMS said. Thus, the net balance is expected to post a shortfall of 16.7 million ounces.

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