Silver Bulls Rejoice as Mexican Miners StrikeSilver Bulls Rejoice as Mexican Miners Strike
By Jon A. Nones
02 Mar 2006 at 05:39 PM EST
St. LOUIS (ResourceInvestor.com) -- Strike hits the Mexico mining industry and many silver bugs are jumping for joy. The silver price spiked today over 4% to breach the psychological $10 barrier, hitting a 22-year high of $10.23 on NYMEX. Is silver really this illiquid or were there other factors at play today?
According to MarketWatch, traders were upbeat about the prospects for a silver exchanged-traded fund. However, Christine Hudacko, advisor at Barclays Global Investors, confirmed with RI that there was no new movement of iShares Silver Trust at the Securities and Exchange Commission.
Jason Hommel, Editor of Silver Stock Report, said silver is indeed this illiquid and the strike in Mexico played a substantial role in today’s spike.
Unrest in the industry has been building since the explosion at Grupo Mexico’s coal mine in northern Mexico that killed 65 men last week. But late last night, union workers closed the world’s no. 1 refined silver producer Penoles' Fresnillo silver mine after tens of thousands of Mexican miners and metal workers joined a nationwide strike.
And Penoles produces an average of 80 million ounces of silver per year, the company said.
According to Hommel, the whole market produces roughly 600-650 million ounces of silver a year. The Silver Institute reported that Mexico accounted for almost 100 million ounces each in 2004, roughly 16% of about 615 million total silver ounces.
Source: The Silver Institute
“But we don’t know exactly [the amount] because there are a lot of independent miners that might not report” their production, added Hommel.
However, by using the numbers above, we can estimate that the Penoles refinery processes 80% or more of all the silver mined in Mexico.
“If 10% of the silver production gets halted, that’s going to have a huge impact on the market,” said Hommel.
Furthermore, it also unclear of how much silver is actually in the marketplace.
Todd Stein & Steven McIntyre of The Texas Hedge Report estimated late last year that “250 million ounces is roughly one-third of the world's supply of above ground silver.”
David Morgan, independent precious metals analyst and author of “The Morgan Report,” previously told RI that the amount of existing .999 fine silver bullion is probably less than 500 million ounces total.
Silver analyst Ted Butler said last summer that “130 million ounces … just about equals the total known world silver bullion inventory.”
And, Jeffrey Christian of CPM Group recently calculated only 75 to 100 million ounces of silver currently in bank vaults.
So with such discrepancy, it is very hard to determine who is right and how much silver is actually out there. What we do know is that Mexico was the world’s leading silver producer in 2004, according to the Silver Institute.
“We’re already in a deficit,” he said. “So if we have this strike and investor interest on top of it...”
You get the picture.
But compared to the market reaction if and when Barclays’ silver ETF gets SEC approval, Hommel said “this spike today is not even close to what you’re going to see.”
According to Hommel, silver used to move up and down $10 daily back when it was $50 in the 1980s.
“We’re going to see these types of movements again,” Hommel told RI.
Today’s Metal Prices
Source: TheBullionDesk.com
April silver climbed 41.8 cents, or 4.3%, to close at $10.208 an ounce today on the New York Mercantile Exchange.
Hommel said that silver was following gold to some extent today as well. Gold futures broke the $570 mark again today, closing at $570.40, up $4.60.
Copper tacked on 3.2 cents to close at $2.2675 a pound extending gains after climbing almost 6 cents on Wednesday.
Grupo Mexico, the world's No. 3 copper producer, said its Cananea and La Caridad copper mines were closed for a second day by the strike.
La Caridad and Cananea between them produced close to 320,000 tonnes of copper in 2005, according to Reuters.
The June palladium contract jumped $3.05 an ounce to end at $303 and April platinum rose $3 to end at $1,054.80 an ounce.