World’s Largest Silver Mines Saw Production Fall 8% In 2018
by Capital Economics
• Despite weaker industrial demand, we expect silver prices to rally by more than 10% this year as safe-haven demand returns and mine production falters.
• To recap, the price of silver plunged last year, in line with industrial metals prices amid trade tensions, and Fed tightening. Around the turn of the year however, silver prices rallied, boosted by safe haven demand and fears of a global slowdown. Indeed, US silver coin sales have rebounded this year and in February demand was strong enough for the US Mint to briefly run out of stock. That said, global growth concerns have now receded, and silver prices are no longer outperforming industrial metals.
• We think that silver will regain its status as one of the top commodity price performers in 2019. Crucial to this is that we think equity markets will fall as growth remains sluggish. This will heighten risk aversion and spark asset reallocation into safe havens, including gold and silver, and away from industrial metals.
• In addition, mine production is stuttering. We estimate that a dozen of the largest silver mines saw output drop by 9% in 2018. While they only account for an eighth of supply, they do highlight the headwinds. In particular, the Escobal mine remains closed and we don’t expect it to restart until 2020 at the earliest. Elsewhere, we think that lower prices for other metals should impede output from polymetallic mines. That said, production from zinc mines that produce silver as a bi-product may rise.
• Admittedly, silver industrial demand will be hindered by lacklustre economic growth. However, this will be partly offset by higher usage in auto applications including for defogging, and in infotainment systems.
• The upshot is that we expect the price of silver to rise to $17.50 per ounce by end-2019 from around $15.40 at present, fuelled in part by ETF demand rebounding to 100 million ounces.
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