THE SILVER MARKET IN 2013 - Reutersshare.thomsonreuters.com/...Silver_Market_in_2013_interim_report.pdf · THE SILVER MARKET IN 2013 Andrew Leyland Manager, Precious Metals Demand

THE SILVER MARKET IN 2013

Andrew Leyland

Manager, Precious Metals Demand

The Silver Institute - 2013 Interim Report

November 12th 2013


• SILVER PRICES

• DEMAND

• SUPPLY

• INVESTMENT

• PRICE OUTLOOK

0

10

20

30

40

50

60

Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13

US

$/o

z

US DOLLAR SILVER PRICES

Source: Thomson Reuters GFMS

US$/oz Average Price Average y-o-y change Intra-period change*

2012 31.13 -11.7% 9.0%

Jan – 31st Oct 2013 24.51 -20.7% -27.8%

*intra-period change refers to difference between the last business day and the first

business day of the year

50

60

70

80

90

100

110

Jan-13 Mar-13 May-13 Jul-13 Sep-13 Nov-13

Ind

ex

(2

nd

Ja

nu

ary

20

13

= 1

00

)

SILVER, GOLD & BASE METALS PRICES


Silver -29%

Gold -22%

Copper -12%

Lead -10%

Zinc -9%

0

100

200

300

400

500

600

700

800

900

Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13

US

$ a

nd

Eu

ro/o

z

Silver (USD)

Silver (JPY)

Silver (INR)

US DOLLAR AND EURO SILVER PRICES


*intra-period change refers to difference between the last business day and the first

business day of the year

20

30

40

50

60

70

80

90

2000 2002 2004 2006 2008 2010 2012

GOLD/SILVER RATIO, 2000 – 2013 TO-DATE

(BASIS WEEKLY AVERAGE PRICES)


Average 60.0

Jan 1st – Oct 31st 2013 = 59.4


• PRICES

• DEMAND

• SUPPLY

• INVESTMENT

• PRICE OUTLOOK

WORLD SILVER DEMAND


Industrial 42%

Photography 22%

Jewelry & Silverware

31%

Net Producer de-hedging

2%

Investment 4%

Industrial 45%

Photography 5%

Jewelry & Silverware

23%

Net Producer De-hedging

3%

Investment 24%

2003 Actual 2013 Forecast

-5

0

5

10

15

20

Coins Jewelry & Silverware

Industrial Photographic

WORLD SILVER FABRICATION

FORECAST ANNUAL CHANGES: 2013 LESS 2012

Mil

lio

n o

un

ce

s


SILVER BULLION COIN SALES

Source: Thomson Reuters GFMS Quarterly Bullion Coin Survey

0.00

5.00

10.00

15.00

20.00

25.00

30.00

35.00

40.00

0

5

10

15

20

25

30

07-Q1 07-Q3 08-Q1 08-Q3 09-Q1 09-Q3 10-Q1 10-Q3 11-Q1 11-Q3 12-Q1 12-Q3 13-Q1 13-Q3

Million o

unces

Other

Europe

N America

US$/o

z

Silver Price

0

50

100

150

200

250

300

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013F

Silverware Jewelry

JEWELRY AND SILVERWARE DEMAND


0

10

20

30

40

50

60

70

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013F

Mil

lio

n o

un

ce

s

PHOTOVOLTAIC SILVER DEMAND


DEMAND SUMMARY

• Total fabrication demand forecast to rise by 4% in 2013

• After two years of contraction, we expect industrial offtake to rise by

1% this year on the back of improved global economic activity

• Demand for jewelry and silverware is expected to post robust growth

of 6% in 2013 as strong growth in emerging markets and the US

offset demand contraction in Europe

• In contrast, photographic demand for silver continues to decline as

part of its secular trend as consumers switch towards digital

technology

• After a record 2011 and a dip in 2012, demand for coins has

bounced back this year, and we forecast a y-o-y growth of 19%


• PRICES

• DEMAND

• SUPPLY

• INVESTMENT

• PRICE OUTLOOK

WORLD SILVER SUPPLY


Mine production

68%

Government Sales 10%

Scrap 22%

Mine production

77%

Government Sales

1%

Scrap 22%

2003 Actual 2013 Forecast

-30

-20

-10

0

10

20

30

Mine production Net Government Sales Scrap

WORLD SILVER SUPPLY

FORECAST ANNUAL CHANGES: 2013 LESS 2012

Mil

lio

n o

un

ce

s


27 Moz -0.36 Moz

-20 Moz

0

100

200

300

400

500

600

700

800

900

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013F

WORLD SILVER MINE PRODUCTION M

illi

on

ou

nce

s


Primary

By-product

Growth of almost 220 Moz in 2003-2013F

MINE PRODUCTION WINNERS AND LOSERS IN 2013*

Mil

lio

n o

un

ce

s

Source: Thomson Reuters GFMS * Figures represent year-on-year change, i.e. 2013 less 2012

-8

-6

-4

-2

0

2

4

6

8

United States

Mexico Dominican Republic

Honduras Australia Poland

OUTSTANDING DELTA ADJUSTED PRODUCERS HEDGE POSITION

0

20

40

60

80

100

120

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013F

Mil

lio

n o

un

ce

s


CASH COST VS. SILVER PRICE


0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0

2005 2006 2007 2008 2009 2010 2011 2012 2013H1

Total Cash Cost

Average Price

US$/o

z

$27/oz $17/oz

SUPPLY SUMMARY

• Total supply forecast to be marginally higher (+0.7%) year-on-year

• Mine production expected to rise by 28 Moz or 4% in 2013, driven by

increased supply from both the primary and by-product sectors

• We estimate producer de-hedging of 35 Moz during 2013 as producers

continue to deliver into outstanding positions or take advantage of lower

prices to close out existing ‘in-the-money’ contracts

• Scrap supply is set to contract by 8% in 2013 due to lower prices and a

decline in the availability of ‘close to market’ stocks

• Government sales largely unpredictable but GFMS expect levels will be

the same as 2012 around 7 Moz


• PRICES

• DEMAND

• SUPPLY

• INVESTMENT

• PRICE OUTLOOK

600

700

800

900

1000

1100

1200

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013F

Mil

lio

n o

un

ce

s

Investment and Coins Remain Key

DEMAND (fabrication excluding coins)

SUPPLY (mine production + scrap)


Investment 287 Moz

0

100

200

300

400

500

600

700

2006 2007 2008 2009 2010 2011 2012 2013

iShare

ZKB

ETF Securities*

Other**

SILVER ETF HOLDINGS

Mil

lio

n o

un

ce

s

655 Moz on October 31st 2013, up by

25 Moz from the beginning of the year

*Includes ETFS London, Australia, NYSE, Glitter and WITE ** Includes Julius Baer, Mitsubishi, Sprott, Central Fund of Canada, Silver Bullion Trust, BlackRock Silver Bullion, DB Physical Silver, DB Euro Hedged, DB GBP Hedged, iShares ETC, Source Physical Silver, Royal Canadian Mint ETR

Source: Respective issuers

INVESTORS’* POSITIONS IN COMEX SILVER FUTURES

* non-commercial & non-reportable net positions in futures taken as proxy for investors’ positions Source: CFTC

0.00

500.00

1,000.00

1,500.00

2,000.00

2,500.00

3,000.00

3,500.00

4,000.00

4,500.00

5,000.00

-60,000

-40,000

-20,000

0

20,000

40,000

60,000

80,000

100,000

120,000

Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13

Co

mex

po

siti

on

s (c

on

trac

ts, t

ho

usa

nd

s)

Long Positions Short Positions Comex Settlement Price

US$

/oz

WORLD SILVER INVESTMENT* VOLUME AND VALUE

0

2

4

6

8

10

0

50

100

150

200

250

300

350

2002 2004 2006 2008 2010 2012

US

$ B

illion

Mil

lio

n o

un

ce

s

*World Investment is the sum of implied net investment and coins & medals

Investment in US$ Billion


INVESTMENT SUMMARY

• Silver, having a greater volatility and trading range than gold markets,

saw a sharper decline in price compared to gold this year

• Primary driver behind the fall in silver and gold prices – talks of QE

tapering, improved economic outlook, more attractive returns in other

asset classes

• In contrast to gold ETFs, where holdings declined to a 3 year low, silver

ETF holdings rose throughout the year to a record high of 650 Moz

• Improved global economic outlook may offer a cushion of support to

prices as silver’s properties as an ‘industrial metal’ benefits from higher

off take

• For some, silver is a more ‘economical’ alternative to gold (~60 x lower

unit price). Silver’s greater volatility and trading range than gold makes it

attractive to certain investors


• PRICES

• DEMAND

• SUPPLY

• INVESTMENT

• PRICE OUTLOOK

PRICE OUTLOOK

Negatives:

• Mine production rising (2013 forecast: 815 Moz)

• Market in a residual surplus (287 Moz forecast for 2013)

• Global economic recovery may curtail the need for expansionary monetary policy, reducing

investors requirement for safe havens

• Ongoing secular decline in photography (though mainly offset by lower photo scrap)

Positives:

• Improved global economic outlook may offer cushion support to price as silver’s properties as an

‘industrial metal’ benefits from higher off take

• Gold:Silver ratio currently at 60, lower than the average level of 55 in the past 3 years, potential

opportunity for outperformance?

• Strong physical demand in India as consumers switch towards other precious metals amid

draconian measures to curb gold imports. Buoyant demand for silver coins globally

Price forecasts:

• We now forecast an average price of $24.24 in 2013 (1st Jan – 31st Oct average $24.51)

Our short-term forecast is that through to year-end silver will trade between $20.20 - $23.70

DISCLAIMER

The information and opinions contained in this presentation have been obtained

from sources believed to be reliable, but no representation, guarantee, condition

or warranty, express or implied, is made that such information is accurate or

complete and it should not be relied upon as such. Accordingly, Reuters Ltd

accepts no liability whatsoever to the people or organizations attending this

presentation, or to any third party, in connection with the information contained in,

or any opinion set out or inferred or implied in, this presentation. This presentation

does not purport to make any recommendation or provide investment advice to

the effect that any gold related transaction is appropriate for all investment

objectives, financial situations or particular needs. Prior to making any investment

decisions investors should seek advice from their advisers on whether any part of

this presentation is appropriate to their specific circumstances. This presentation

is not, and should not be construed as, an offer or solicitation to buy or sell gold or

any gold related products. Expressions of opinion are those of Reuters Ltd only

and are subject to change without notice.

Documents

THE SILVER MARKET IN 2013 - Reutersshare.thomsonreuters.com/...Silver_Market_in_2013_interim_report.pdf · THE SILVER MARKET IN 2013 Andrew Leyland Manager, Precious Metals Demand