No real surprises in the Thomson Reuters GFMS World Silver Survey 2015 prepared for the Silver Institute and released yesterday. Hardly surprisingly many of the findings largely echoed the earlier report from the New York based CPM Group, which we reported on here last week – See Positives and negatives in CPM silver report. But even so, there were enough differences in some interpretations of the overall data to make it valuable to read both reports alongside one another – if one has the time!  

Should you wish to download the full GFMS report free of charge, and other GFMS reports too, one may apply to do so via the Thomson Reuters Eikon website by clicking on this link.

Broadly the new GFMS reports saw a small deficit (4.9 million ounces) in silver supply compared with demand last year, down from a much larger deficit (111.9 million ounces) in 2013. This was caused by a significant increase in mine production to 877.5 million ounces in 2014 from 832.5 million ounces in a year earlier, only partly offset by a lower silver price-related fall in secondary supply, culminating in a global supply figure of 1,061.8 million ounces (up from 1,000.5 million ounces in 2013) and falling global demand of 1,066.7 million ounces, down from 1,112.4 million ounces in 2013. However, some key components of global silver demand rose, with global silver jewellery demand posting a new record and silverware offtake rising to its highest level since 2006. This was coupled with notable growth in key silver industrial end uses, including ethylene oxide, photovoltaics, and brazing and alloys.

While the Silver Survey does not set out to predict likely figures and prices for the current year, the implication is for much of the same. Some reports have already come up with eye-popping headlines like ‘Silver to slump 14% in 2015 – GFMS’ from Bloomberg (and published here on Mineweb). This is a little misleading in that silver had already slumped well below the level suggested before end 2014 and is at around this level again now. The ‘slump’ is from last year’s average price of $19.08 which was far higher than the year-end figure because silver started 2014 at around $20 and moved higher at times in the first half before coming down sharply from late July.

The fall in global demand is largely down to China where there was a sharp drop in jewellery and investment demand and has led to it being overtaken by India as top consumer.

Looking at new mine supply, GFMS notes that this increased for the 12th successive year in 2014, although there is perhaps little incentive now for silver producers to increase output further this year bar a good rise in the metal price.  GFMS notes that the rise was largely down to new production already in the pipeline – notably Tahoe Resources’ Escobal mine in Guatemala which was building up to full output and is now, according to GFMS, the world’s second largest silver mine. Single handedly it has put Tahoe into the World Top 10 silver producing companies (see Table 2) and almost brought Guatemala into the world’s top 10 silver producing countries – but not quite as it only made it to No. 11 on the GFMS reckoning.

Table 1. Top 10 silver producing nations 2014

Rank Country Production 2014 (Moz)
1. Mexico 192.9
2. Peru 121.5
3. China 114.7
4. Australia 59.4
5. Chile 50.6
6. Bolivia 43.2
7. Russia 42.9
8. Poland 40.6
9. USA 37.6
10. Argentina 29.1
Others 145.0
Global Total 877.5

Source: Thomson Reuters; GFMS

Global silver mine output is split between primary producers with some 269.5 million ounces and secondary producers who generate silver as a byproduct – notably from gold mining (110.1 million ounces), copper mining (179.8 million ounces) and lead and/or zinc mining (310.6 million ounces). We reproduce listings of the top 10 silver mining companies below with the majority of these mining silver as a byproduct  in Table 2. and the top primary silver mines in Table 3. However, GFMS does not see global mine supply rising this year with new production perhaps unable to keep up with declining output from aging mining operations and little incentive for the byproduct producers to expand either given the global downturn across the metals commodities sector.

Table 2. Top 10 silver producing companies

Rank Company Output 2014 (Moz)
1. KGHM 40.4
2. Fresnillo 40.4
3. Goldcorp 36.8
4. Glencore 34.9
5. BHP Billiton 34.0
6. Polymetal 28.7
7. Pan American Silver 26.1
8. Volcan 22.5
9. Tahoe 20.3
10. Codelco 19.9

Source:  GFMS; Thomson Reuters

Table 3. Top 10 primary silver mines

Rank Company Country Company Output 2014 (Moz)
1. Cannington Australia BHP Billiton 24.73
2. Escobal Guatemala Tahoe Resources 20.30
3. Fresnillo Mexico Fresnillo 20.10
4. Dukat Russia Polymetal 19.50
5. Saucito Mexico Fresnillo 15.49
6. Uchucchacua Peru Buenaventura 12.06
7. Pirquitas Argentina Silver Standard 8.73
8. Greens Creek USA Hecla 7.83
9. Palmarejo Mexico Coeur 6.56
10. Pallancata Peru Hochschild 6.53

Source:  GFMS; Thomson Reuters 

On the investment side there has been remarkably little offloading from the major silver ETFs during the year, which might have been expected given the fall in silver price. This is an indicator that the firm long-term holders are very much still in the game and any sales by weaker holders out of the ETFs have been countered by the die hard silver investors picking up more at lower prices. 

After very strong growth in 2013, though, physical bar and coin/medal sales both slumped last year and that may well be a trend which will continue.

But, global industrial demand continues to grow, while low silver prices will continue to restrain scrap supply, so there could be some light at the end of the tunnel as far as silver fundamentals are concerned. We should then bear in mind that the silver price fell back very heavily in 2013 when there was a quite substantial supply deficit. There are too many other factors at play here.

GFMS does go into silver movements on the major exchanges and does note that on COMEX the price appeared to be at least partially driven down by some big short positions being taken in Q3/early Q4 2014, although it is also noted that there was no major exit from long positions and that they actually started to build further towards the end of the year and into early 2015.

There are an increasing number of observers out there who reckon that silver pricing activity is all about COMEX and buying, or mostly selling, of silver futures keeping the price far lower than it might manage in a truly open market. This is not something that GFMS, or any of the other mainstream analysts, will speculate on, and they get criticised heavily for it, but they will tell you they prefer to deal with facts (although admittedly they sometimes get these wrong too!).

But, as we said in commenting on the CPM report linked at the start of this article, that although the overall tone of this latest GFMS report could be seen as somewhat negative for the silver investor, there are elements within it that could be deemed positive on the silver fundamentals front which, should some of the strange activities seen in the past two to three years on COMEX fall away, could bode well for the silver price going forward.