And a silver surplus!Not all agree with Ted Butler a case of which way do they want silver to move.
GOLD AND SILVER ANALYSIS
INDIA LARGEST CONSUMER
Silver supply seen as in surplus and staying that way
The latest comprehensive Virtual Metals analysis of the world silver market shows the metal to be in surplus in 2007 and that situation likely to continue.
Author: Rhona O’Connell
Posted: Friday , 25 Jan 2008
LONDON -
The second issue of The Silver Book, sponsored by Fortis Bank and compiled by research house VM Group states that the silver market was in surplus in 2007 by 6,141 tonnes and expects the market to remain in surplus this year, with photographic demand continuing to fall rapidly.
The surplus for this year is projected at 7,315 tonnes, or 14 weeks' demand, despite the fact that jewellery is likely to make a modest recovery as consumers adjust to higher prices. There will be some good news from newer applications, notably wood preservatives, while demand for the Exchange Traded Funds is likely to continue, but at a lower level of approximately 800 tonnes. ETF demand in 2007 was 2,147 tonnes.
The study expects jewellery and silverware demand this year to reach 9,045 tonnes, up by 2.8% up on 2007 levels, with electrical and electronics use rising by 6.3% to 6,596 tonnes. Photographic demand is projected to fall again, 2.7% to 4,349 tonnes, a similar fall to that registered in 2007. The group suggests that photographic demand has been falling at a constant rate of 2.3% per annum for at least the last five years and its market share for 2008 is expected to be 16% of the world total. Twenty years ago it accounted for over 50% of total. Jewellery and silverware are expected to account for 33% of the total, with electrical and electronic uses absorbing 23% of overall demand.
India remains the largest jewellery consumer at 2,067 tonnes (although this is reduced by scrap return, see below), which is equivalent to 24% of world jewellery demand. Italy is recorded as the second largest consumer at 804 tonnes, with China standing third at 668 tonnes. No one particular country stands out as showing a clear trend of increase in jewellery demand over the past five years, although it is of interest to note that US' demand has been falling steadily, dropping from 658 tonnes in 2002 to 558 tonnes in 2007. This is a compound rate of fall of just over 3% per annum.
The US remains the largest consumer of silver in photographic materials at 1,405 tonnes (31% of total). The calculated rate of attrition in the US' photographic industry works out at 2.6%, the same rate as that projected for 2008. The rate of fall in Japan is higher however, with a drop of 3.5% forecast for 2008, similar to that of 2007. Japan is the second largest consumer of silver in the photographic industry, with 24% of total.
On the supply side, mine production is expected to increase by 792 tonnes or 4%, with Peru remaining the world's largest producer, accounting for 3,557 tonnes or 17% of total. Mexico will occupy second place, at 2,925 tonnes or 14% of total and China occupying third place with 12% of total.
Augmenting this is secondary supplies from scrap recycling, which is expected to amount to 13,058 tonnes, almost exactly the same as scrap recycling in 2007. Not surprisingly, photographic scrap is falling as result of the erosion in the primary demand in that sector. The components of photographic scrap are falling in virtually all areas, with imaging return dropping by just over 5%, and the balance of photographic scrap return dropping by just over 1%.
Jewellery return dropped by 20% in 2007 and is expected to remain at similar levels during 2008. The largest supplier of jewellery scrap was India, with 724 tonnes, fractionally higher than in 2006 and at the same level as that projected for 2008. This compares with Indian demand of 2,076 tonnes in2007, thus suggesting that scrap supply from jewellery was equivalent to 35% of total demand. The second largest supplier of jewellery scrap in 2007 was Thailand, with return of 408 tonnes, compared with jewellery demand of 452 tonnes, reducing Thailand's net jewellery offtake by 90% to the equivalent of 44 tonnes.
The study looks at the performance of the silver Exchange Traded Funds, noting the slowing rate of accumulation in the Barclay Global Investors fund, which on 28th April 2004 was the first such silver fund to be launched. Holdings by the end of 2006 were 3,768 tonnes while demand in 2007 was 1,478 tonnes. The report notes that the two funds launched on 2007 (one in the UK and one in Switzerland) saw a steady increase in their holdings, absorbing 670 tonnes during 2007, giving a combined total for the year of 2,147 tonnes. This effectively puts ETF demand at fourth in the league of demand components. If ETF demand is added to industrial consumption then it raises offtake by 8% and the total for 2007 comes to 30,136 tonnes.
Even with ETF demand, however the market remained in a surplus in 2007 and is expected to do the same in 2008.