Bloomberg silver supply and demand 2012
Jan. 31 (Bloomberg) -- Record industrial demand for silver and resurginginvestor interest is diminishing a supply surplus, driving the metal usedin everything from solar panels to batteries into its best start to a yearin almost three decades. Manufacturers will use 15,415 metric tons, 2.5percent more than in 2011 and reducing the glut by 41 percent to 3,297tons, Barclays Capital estimates. Investors may buy 2,000 tons throughexchange-traded products, after selling 1,300 tons last year, MorganStanley predicts. Prices will average $37.50 an ounce in the fourthquarter, 11 percent more than now, the median estimate in a Bloombergsurvey of 13 analysts shows. The metal rallied 24 percent since closing atan 11-month low in December, entering a bull market on mounting confidencethat another global recession will be avoided even as the World Bank andInternational Monetary Fund cut their growth forecasts. Prices had plunged44 percent in eight months, making it the most volatile of any metaltracked by Bloomberg, as expansion slowed from Europe to China, crimpingdemand for commodities. "Silver got hammered and now we're into a phasewhere it will do quite well," said Dan Smith, an analyst at StandardChartered Plc in London, and the second-most accurate price forecastertracked by Bloomberg Rankings in the past eight quarters. "Appeal comesfrom its widespread use in both industry and investment. I think it'srelatively cheap."Standard & Poor'sThe commodity advanced 21 percent since Dec. 31 to $33.7175, the beststart to a year since 1983. The Standard & Poor's GSCI Total ReturnIndex of 24 commodities rose 3.1 percent and the MSCI All-Country WorldIndex of equities 6 percent. Treasuries returned 0.3 percent, a Bank ofAmerica Corp. index shows. This year's anticipated gains in silver willmean record profit for Coeur d'Alene Mines Corp. and Fresnillo Plc,analyst estimates compiled by Bloomberg show. Economies may still pose thebiggest threat to the rally. The IMF cut its 2012 forecast on Jan. 24 to3.3 percent from 4 percent and warned that Europe's debt crisis threatenedto derail the world economy. The World Bank reduced its estimate by themost in three years on Jan. 18, to 2.5 percent from 3.6 percent. Globalindustrial production will expand 2.3 percent, from 4.9 percent in 2011,Macquarie Group Ltd. predicts. The 0.5 percent contraction in the17-nation euro region seen by the IMF may curb demand for imported goods.Chinese exports rose 13.4 percent in December from a year earlier, theslowest pace since February, according to customs data. The nationimported 235 tons of silver in December, 36 percent less than the averageover the past two years, the data show.Industrial Demand"In the face of weak industrial demand, the short-term investment argumentis not entirely convincing," said David Jollie, an analyst at Mitsui &Co. Precious Metals Inc. in London and the most accurate forecaster in theLondon Bullion Market Association's 2011 price survey. "It's much moredifficult to get people to invest for the long term in times of economicuncertainty." For now, speculators are getting more bullish. Hedge fundsand other money managers more than doubled wagers on higher prices thisyear, Commodity Futures Trading Commission data show. They held 16,034futures and options in the week ended Jan. 24, the most sincemid-September. The most widely held option gives the owners the right tobuy silver at $40 by June, data from the Comex in New York show. The threebiggest holdings are all call options at 19 percent or more above pricestoday. Investors added 196 tons to their ETP holdings this month, takingthe total to 17,492 tons valued at $18.96 billion, within 7 percent of therecord reached in April, according to data compiled by Bloomberg. Theyalso bought 6.082 million ounces (189 tons) of American Eagle silvercoins, the most in a year, data on the U.S. Mint's website shows.Kodachrome FilmThose sales are whittling away the supply glut as industrial consumptionstrengthens. Global solar-panel installations increased capacity by 70percent last year, creating enough generating power to supply about 20million homes, according to the European Photovoltaic IndustryAssociation. The metal is also used in electrical conductors, woodpreservatives and alloys, compensating for a slump in photographic filmdemand. Eastman Kodak Co., based in Rochester, New York, said in 2009 itwould stop making Kodachrome film after more than seven decades and onJan. 19 filed for bankruptcy. Demand for silver from photographic-filmmakers slid at least 66 percent in the past decade, the Washington-basedSilver Institute estimates.Gold RatioSilver may still be cheap relative to gold, with a price ratio of 51.7,down from 57.4 in December. It averaged 32.4 in 1980, when silver reacheda record $50.35 in New York trading. Nelson and William Hunt of Dallaswere convicted eight years later of conspiracy for attempting tomanipulate prices and were ordered to pay $130 million. Ininflation-adjusted terms, that peak would be equal to $138.31 as of lastyear, according to a calculator from the Federal Reserve Bank ofMinneapolis. Crystalline silicon solar panels use as much as 0.12 grams ofsilver per watt, and as much as 40 grams go into a 32-inch plasmatelevision, according to VM Group, a London-based research company.Electronic-equipment manufacturing will expand 5 percent this year,according to Los Altos, California-based researcher Henderson Ventures ina December report. Coeur d'Alene, which gets about 69 percent of itsrevenue from silver, will report profit of $241.50 million this year,compared with an estimated $120.25 million in 2011, according to the meanof four analysts' estimates compiled by Bloomberg. Shares of theIdaho-based company gained 18 percent since the start of January.Most Accurate ForecasterFresnillo will report net income of $988.7 million this year, comparedwith an estimated $945 million in 2011, the mean of six estimates shows.Shares of the Mexico City-based company jumped 16 percent in London thisyear. "Silver is a hybrid," said Bart Melek, the head of commoditystrategy at TD Securities Inc. in Toronto and the most accurate forecastertracked by Bloomberg Rankings in the past eight quarters. "It benefitsfrom being precious. Later on in the year we're going to see a bit of arecovery in industrial demand."