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Silver faces ‘unprecedented’ shortages as demand outpaces supply

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By Robin Bromby - 
Silver shortages supply demand Sprott Asset Management Incrementum

Of the commodities, silver comes in second (after oil) for the number of uses, according to the Toronto-based Sprott Asset Management.

It is the most reflective of all metals, it is a great conductor of heat and electricity, it resists corrosion and oxidation, and it has micro-bacterial and anti-microbial qualities.

And, of course, it can be put in a safe or vault in coin or bar form.

Indeed, Sprott says, its number of applications come to about 10,000.

Better still for investors and emerging miners, it is soon going to be in very short supply.

Record demand, growing deficits

The recent annual report on the metal from the Washington-based Silver Institute shows that demand in 2022 had risen by 38% over two years.

Demand for silver grew 18% year-on-year (from 2021) to a record high of 1.24 billion ounces, resulting in a second straight year of silver deficit.

On the other side of the coin, the 2023 World Silver Survey noted that the global silver market in 2022 was under-supplied to the tune of 237.7Moz.

The Silver Institute deemed it “possibly the most significant deficit on record”.

Solar consumption breaks into a gallop

Now ANZ Bank’s commodities team of Daniel Hynes and Soni Kumari has turned its spotlight on to the metal with a paper just out called “Solar’s Silver Lining”.

Solar panel production, which is now a major user of the white metal, is soaring: this year China is expected to install new solar panel capacity equivalent to the total present installed capacity in the US.

By 2025, ANZ expects industrial demand for silver in solar panelling to make up 53% of the metal’s demand.

The problem is, of course, that growth in mine production is largely beholden to mining of other metals with silver as a by-product.

With base metal prices weakening at present, this could have a knock-on effect in regard to the volumes of silver coming as a by-product.

The Silver Institute’s figures show that mine output in 2022 fell by 0.6%.

The reason? Lower by-product output from lead-zinc mines, especially in China and Peru.

In fact, Peru’s output last year was down by 263 tonnes due to a suspension at one mine and falling grades at several others.

ANZ also notes that scrap makes up 20% of supply, and that source is also now lagging.

Supply problems ‘unseen for decades’

The bank report points out that above-ground silver inventories remain plentiful but have dropped sharply over the past couple of years.

“We estimate the silver market is entering a period of tightness unseen for decades.”

“This may not be alleviated by higher silver prices,” adds ANZ.

Annual installed photovoltaic capacity is expected to reach a record high, with South America and Australia being the only laggards.

The European Union plans by 2025 to bring online more than 320 gigawatts of solar energy — that will see Europe double its solar capacity in just five years from 2020.

The EU now gets 5% of its electricity from solar.

China solar capacity has reached 448GW, making it the world leader.

In the next two and a half years, a further 395GW will be up and running in China.

Capital investment in silver has been lagging

The precious metals house, Incrementum of Liechtenstein, devoted two chapters of its recently released annual “In Gold We Trust” to silver, and agrees with ANZ’s analysis, saying that “steadfast commitments to the green energy transition serve as a key battleground for silver industry demand”.

But, along with this phenomenon, there is also the silver supply dynamic.

“We expect the prolonged absence of capital expenditure to be reflected in a future for the shiny metal that is characterised by unprecedented scarcity,” says Incrementum.

But the firm’s silver future view is clear.

“The future of silver shines bright, arguably with a glow more radiant than previous bull markets.”

Silver has survived as investment metal even after demonetisation

With the gold-silver ratio now at 1:84, silver seems to be still be needing the yellow metal’s coattails.

But it must be kept in mind that silver has retained its appeal in spite of its loss of money status in the world’s two key economies, the US and China.

In Washington, the Coinage Act of 1873 removed silver’s status as legal tender.

That led to decades of battles over silver, with the Free Silver Movement fighting to reverse the decision (and one presidential candidate being a bimetallism advocate).

Yet today the American Silver Eagle is the most bought silver coin in the world

In China, silver was the basis of the monetary system until the 1930s and today Chinese investors are focused on gold.

Perth Mint, India see silver sales surge

And, yet again, silver remains valued for its investment quantities.

In April, Perth Mint sold 1.94Moz in the form of silver coins and bars, a six-month high.

India, in the period January to August 2021, imported 154.3 tonnes of silver.

Over the same period in 2022, the country imported 6,370 tonnes as investment surged, especially in rural areas where the metal is regarded as “poor man’s gold”.

That’s a year-on-year rise of 4,028%.

Australia’s new wave of primary silver miners

Given the concerns over silver production being heavily slanted to by-product status, the emergence of several new primary silver projects is of huge significance.

In recent developments, Investigator Resources (ASX: IVR) has increased the resource estimate at its Paris project in South Australia to a contained 57Moz of silver, with 72% of the resource now in the indicated category.

In NSW, Lode Resources (ASX: LDR) has reported “multiple” new targets being defined at its Webbs Consol silver-base metals project.

This comes on top of several high-grade silver-base metal lodes being discovered during the recent drill program.

Meanwhile, while Silver Mines (ASX: SVL) is experiencing a delay due to an environmental group taking it the NSW Land and Environment Court, the company has been given its mining licence for the Bowdens project where annual production of 6Moz is planned.

The Bowdens project has also been given a State Significant Development status.

In Argentina, Unico Silver (ASX: USL) has recently lifted its resource at the Cerro Leon project to 92 million ounces of silver equivalent, an increase of 84% on the previous resource size.