(Kitco News) - Net global silver investment declined in 2013 while fabrication demand increased, with a rises in the amount of metal used for jewelry, silverware and solar panels, said CPM Group Tuesday.
Overall silver supply fell last year, mainly the result of less recycling, while mine supply rose, the consultancy said in its 206-page Silver Yearbook 2014.
Prices for silver, based on the settlement for the nearby active contract on the Comex division of the New York Mercantile Exchange, slipped to an average of $23.75 an ounce in 2013. This represented a decline of 23.8% from 2012, although prices over the course of 2013 remained at elevated levels, CPM Group said.
“Silver prices are forecast to consolidate during 2014, potentially moving higher
during the latter half of the year,” the consultancy said in the report.
during the latter half of the year,” the consultancy said in the report.
Shorter-term investors were primarily responsible for the weakness in silver last year, CPM Group said. However, the consultancy also said, overall investment remained strong enough for the metal to hold up at historically high levels.
“Silver faced some of the same problems that were being faced by the gold market last year: unrealistic investor expectations, especially on the part of shorter-term investors,” CPM Group said. “Many shorter-term investors that were holding onto silver in the hopes of prices rising back toward $50 or higher lost interest in silver, especially with improved conditions in the equity and real estate markets during 2013.
“That is unfortunate for these investors, because there are many economic, political,
and financial problems still at large in the world, and they are likely to negatively affect stocks, bonds, and other traditional investments,” CPM Group later said in the report. “Buying and holding silver as partial insurance and protection against these hostile developments still makes sense, and represents part of a sound investment strategy.”
and financial problems still at large in the world, and they are likely to negatively affect stocks, bonds, and other traditional investments,” CPM Group later said in the report. “Buying and holding silver as partial insurance and protection against these hostile developments still makes sense, and represents part of a sound investment strategy.”
In fact, said CPM Group, longer-term investors viewed the weakness in silver prices as a buying opportunity, which kept prices from falling further. A consolidation phase in the silver market likely would provide investors with confidence to step back in as buyers, as this would quell fears that prices may decline further, CPM Group said.
On a net basis, silver investment demand slipped to 105.3 million ounces, down 42% from 2012, and hit the lowest level of investment demand since 2008, when investors absorbed 64.8 million ounces of silver, the report said. Still, despite the decline, the consultancy also reported that silver net investment demand was the 10th highest level since 1960.
Global demand for silver coins rose to a record high of 136 million ounces in 2013, compared to 105.9 million in 2012, CPM Group said. Silver exchange-traded-fund holdings fell by 2.5 million ounces to 616.6 million, still the second-highest level. However, the net-long position of non-commercial accounts, which are large institutionally managed investor funds, on Comex declined to the lowest levels since 2003, CPM Group said.
Net investment demand is forecast to slip further to 86.9 million ounces in 2014, CPM Group said. “These purchases are large and should prevent prices from declining significantly during 2014, but this level of investment demand is not strong enough to drive silver prices sharply higher.”
Meanwhile, weaker silver prices since 2011 boosted fabrication demand, which rose 6.3% to 865.8 million ounces in 2013, CPM Group said. This was the highest level of fabrication demand since 2007, when it was 865.9 million ounces.
“The increase was driven primarily by higher demand for jewelry and silverware and from silver’s use in solar technology,” said the report. “Demand for silver also rose from chemical catalysts, brazing alloys, and biocides. The increases in demand from these sectors offset weakness in demand from the photography and electronics sectors.”
Demand from jewelry and silverware, the largest sources of fabrication demand, rose to 266.5 million ounces in 2013, the highest since 2003. Weakness in silver prices and restrictions on gold imports into India helped boost silver jewelry demand during 2013.
Silver demand from the solar panel industry rose to 69.5 million ounces in 2013, up 46.4% from 2012, reversing a decline in demand from this sector during 2012. This demand is forecast to continue rising as the cost of producing panels declines and countries keep trying to add renewable power to their energy mix, CPM Group said.
Silver use in ethylene oxide catalysts, which is a fairly small but rapidly growing source of silver demand, rose to 15.3 million ounces during 2013, up 24.5% from 2012.
Silver demand from the electronics and batteries sector dipped 0.4% to 218.4 million ounces in 2013. The marginal decline was the result of reduced demand for personal computers and laptops, with consumers increasingly purchasing tablets, CPM Group said. However, demand from this source is forecast to rise in 2014, with much of the transition from personal computers to tablets having now already occurred. An increase in the volume of electronics produced is forecast to boost this silver demand to 221.7 million ounces in 2014.
Despite declining for 14 straight years, photographic demand remains the third-largest source of silver-fabrication demand, said CPM Group. This fell 8.6% last year to 82 million ounces.
Secondary Supply Falls While Mine Output rises
Total refined silver supply fell 2.4% to 971 million ounces in 2013, CPM Group said.
This decline was driven primarily by a sharp reduction in secondary supply, or recycled material, the consultancy said. This declined 19% to 230 million ounces, mainly the result of weaker silver prices.
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