Skip to content

Silver Market

Silver Market Update 2007

Based on a 46% price increase, 2006 was a good year for silver. Total annual demand is now approaching one billion ounces. As dynamic as the silver market is, the complete picture is quite complex. To keep you current we have assembled a synopsis of global demand and supply issues, and a look to the future.

Silver Market Drivers
For the first time in several decades, investment demand emerged as a significant growth component (9% of total demand). This growth is illustrated by the success of the iShares Silver Trust which commenced trading in the U.S. in April 2006. For many years silver market observers focused primarily on estimates of fabrication demand, together with mine supply and scrap recycling, to determine market balance. But with the success of the silver exchange-traded fund (ETF) attracting increasing investor interest, and Barclay's application to double the size of trust, further growth in investment demand may be expected.

Industrial demand, which includes electronic and electrical applications, accounts for 46% of global silver demand. 2006 likely surpassed 2005's record of over 409 million ounces of silver. Demand continues for semiconductors and a variety of consumer products such as flat screen displays. Silver use in applications including solders, bearings, chemical catalysts used in polyethylene, mirrors, medical equipment and dental alloys, remained strong. Photographic use of silver comprised 16% of demand in 2006, down 2% from 2005. Silver supply was met through mining (70%), scrap recycling (21%), and government sales (9%). So far, higher silver prices have not resulted in a significant production increase. Production growth is estimated at four million ounces (0.6%) globally. Measured by source, silver by-production in lead-zinc, copper and gold mines grew by 2%, while production in primary silver mines fell by nearly 3%. Government sales were estimated at less than 80 million ounces, the majority from China and Russia. India supplied approximately 30 million ounces to its domestic market.

Jewelry and silverware (24% of total demand) declined by almost 20 million ounces, led by a demand slump in India, which was caused by central government sales into the local market, high prices denominated in rupees, and 2005 inventory build-up that was sold in 2006. The use of silver in photography (16%) declined by approximately 17 million ounces, reflecting the new dominance of digital photography. This decline is offset by the drop in silver recovered from photographic related recycling. Levels of Indian scrap, a major source of recycled silver, did not grow in 2006 and silver prices are still not high enough to stimulate large scale scrapping of jewelry and silverware. In summary, overall fabrication demand in 2006 likely declined by approximately 3%, though investment demand has grown rapidly since 2002, reaching approximately 80 million ounces in 2006.

Outlook for 2007
GFMS believes that the main driver in the outlook for silver prices is investment demand. Many investors think that silver's unique qualities give it price inelasticity in industrial applications and, from a monetary perspective, they anticipate that a continued decline in the relative value of the U.S. dollar will be beneficial for silver. Both views are supported in the strong correlation in 2006 of silver to copper prices, and an even stronger correlation between silver and gold prices. Silver has actually outperformed gold as shown in the decline in the gold: silver ratio since 2003.

On the global economic front, the Organization of Economic Cooperation and Development reported in November 2006 that real GDP growth among its 30 members (which include Western Europe, North America, Japan, Korea and Australia) would average 3.2% for the year. In 2007 and 2008, growth rates are forecast at 2.5% and 2.7% respectively, reflecting the impact of monetary tightening.

Growth in India and China-the major producers of electronics and electrical goods-is forecast at greater than 7% and 10% respectively in 2007 and 2008. This continued economic growth favors growth in industrial uses of silver, though likely at a slower pace than 2006. New silver production in 2007, GFMS notes, could total 16 million ounces, and total planned expansions between 2007 and 2010 are expected to add "much less" than the 100 million ounces of annual production that were added in the latter half of the 1990s. This would imply a growth in mine supplies of silver close to OECD growth rates over the next several years.

Data Source: These estimates are based on GFMS' commentary in their silver market update, provided for the Silver Institute in mid-November 2006.

New Developments in Silver Applications

New applications that take advantage of silver's anti-microbial properties reached North American markets in 2006. Motorola introduced cell phones (Models i870, i835 and i880) featuring an antimicrobial coating developed by AgION Technologies (www.agion-tech.com). Keyboard manufacturer Logitech (www.logitech.com) offers a wireless keyboard and mouse (Model MX 3200) that uses silver to eliminate germs. Skilcraft's EconoGard ballpoint pens (www. inb.org) employ a silver-based antimicrobial material, joining Paper Mate's FlexGrip Elite pens. Canadian paper maker Domtar Inc. (www.domtar.com) has launched a line of silver-treated papers that show over 90% bacteria reduction on the paper surface.

The European Union's recent ban on the use of lead-tin solders in canned goods and electronics, means the replacement silver-tin solders should increase silver demand up to 100 million ounces annually, according to a paper presented at the 5th annual China International Silver Conference held last fall.

Another development is the superconducting wire market, which the U.S. Department of Energy estimates could reach 50 million ounces per year within a decade. Silver reduces resistance losses compared to copper. Applications include motors and generators, medical diagnostic technology and electricity transmission in power lines.

Wood preservatives are a developing market, since copper arsenides were banned from use in fence posts in the U. S. and Japan. Research published in 2006 showed several commercial silver-based products to be effective in preventing fungal decay in certain conditions. The research is supported by the Silver Research Consortium, funded in part by The Silver Institute.

Concern about deteriorating water quality due to copper-based biocides has led preserved wood manufacturers to shift toward silver biocides. The worldwide market is estimated at 120 million ounces of silver annually, and product authorities believe silver biocides will in time capture the entire market.