CPM: Silver Market at WatershedCPM: Silver Market at Watershed
By: Dorothy Kosich
Posted: '25-APR-06 08:00' GMT © Mineweb 1997-2004
RENO--(Mineweb.com) New York-based precious metals and commodities group CPM declared Tuesday that the silver market "appears to be at a watershed," as a 16-year run of living off inventories appears to be ending, paving the way for investors to start rebuilding inventories.
Nevertheless, CPM warned, the current outlook for silver usage is not as favorable. And, the analysts held off jumping onto the fashionable silver ETF promotional bandwagon.
While investors cannot get enough of the shiny precious metal, manufacturers appear to be cutting back on their consumption of silver.
"Investors probably will be net buyers of silver in 2006, forcing the silver market back into a surplus of newly refined silver relative to fabrication demand," estimated at around 48.4 million by CPM. "This is the first year since 1989 in which investors will be net buyers of silver as a group."
However, the outlook for silver usage will shift to a surplus this year as CPM projected a 5% decline to 765.7 million ounces. Silver use in photography alone is expected to decline 12.3% to 182.5 million ounces in 2006. The demand for silver in jewelry and silverware is projected to drop 6% this year to 271.6 million ounces.
The surplus will reflect increases in investor demand for physical silver, partly due to the silver ETF. However, it will also mirror increased mine production, more secondary recovery, and lower fabrication demand. "The concept that the silver market is moving from a 16-year deficit to a surplus in 2006 is very much a result of the conclusion that investors are increasing their demand for physical silver, bidding the price of silver higher to the point where it elicits increased supply from mines and scrap recovery efforts, and discourages silver use in jewelry and silverware," according to the yearbook.
The report predicted that total supply will rise another 3% this year to 814.1 million ounces, including 545 million ounces of world mine output. These production increase reflect the effects of higher silver prices and higher gold and base metals prices, according to CPM. In the meantime, "many deposits that formerly were sub-economic are being re-examined. Other projects, newer discoveries, are being developed as well." Mexico remains the top silver producing nation, followed closely by Peru.
CPM also suggested that the Indian Government will sell 32 million ounces of its silver stocks this year.
Meanwhile, while the possibility of a silver ETF has generated consideration attention, CPM insisted that it is only a part of the larger story. Even without the silver ETF, "investors have been buying more silver, other investors have been selling less silver, the price of silver has been rising, fabrication demand in many product areas has been declining, and silver supplies from mines and scrap refining operations has been increasing."
"The potential that a silver ETF may make it easier for some investors to buy physical silver in the future, and may attract new groups of investors to physical silver in the future, really is a footnote to the larger story," CPM asserted. Interestingly, CPM noted that small silver investor, long a major stalwart for silver demand, "appear to be a relatively mild force in the current period of investor interest in silver."
For the first time, the CPM 2006 Silver Yearbook is being published in a hardbound edition by financial publishers John Wiley & Sons. For further information, go to www.cpmgroup.com.