Interim Silver Market Review 2020 - The Silver Institute · 2020. 11. 17. · Mined silver production in 2020 lower due to COVID Mined silver production is forecast to decline 6.3%

Silver InstituteInterim Silver Market Review 2020

Philip Newman & Adam Webb, Metals Focus

November 17th 2020

2

Silver now holding in a higher range, despite recent weakness

Source: Bloomberg

10

12

14

16

18

20

22

24

26

28

30

1000

1200

1400

1600

1800

2000

2200

Jan-19 Apr-19 Jul-19 Oct-19 Jan-20 Apr-20 Jul-20 Oct-20

US$

/oz

US$

/oz

Gold Price Silver Price

3

Relationship with base metals has strengthened recently, but…

Source: Bloomberg

4

...the gold-silver dynamic continues to dominate

Source: Bloomberg

5

The gold:silver ratio had fallen noticeably

Source: Bloomberg

60

70

80

90

100

110

120

130

Period average ratio

6

Overall though, it remains above the long-term average

Source: Bloomberg

30

50

70

90

110

130

Period average ratio

7

The macro environment remains pivotal

Source: Bloomberg

“Spread between US high yield corporate debt and 10Y Treasuries”Risk appetite has grown recently

8

The macro environment remains pivotal

Source: Bloomberg

“10-2Y and 30-5Y Treasury Spreads”Interest rate expectations rising, but remain low in absolute terms

9

The macro environment remains pivotal

Source: Bloomberg

“US 5Y Breakeven rates and CRB Index”Inflation expectations have recovered from exceptionally low levels

earlier in the year, but remain modest

10

Investor positioning constrained by EFP issues

Source: Bloomberg

10

15

20

25

30

-300

-200

-100

0

100

200

300

400

Nov-17 Nov-18 Nov-19 Nov-20

Net Long Silver Price (RHS)

Moz US$/oz

11

What happened to EFPs?

SILVER EFP

GOLD EFP

• Early jump due to COVID disruptions

• Temporary closure of Swiss refineries made it hard to re-cast LGD bars to 100oz/kilobars

• Logistics bottlenecks due to limited flights

• COMEX market makers tend to hedge loco-London, while physical delivery is very rare

• Dealers who were short Comex exposed to risk that counterparties would not roll. Led to rush to buy back shorts

• High demand for EFP, effectively a long Comex/short loco-London transaction

• Position limits also added pressure

• EFPs now eased, reflecting sufficient COMEX inventories and market conditions more generally normalizing

• Jump in silver EFP in spite of Comex stocks being at record high levels

Source: Bloomberg (Morgan Stanley EFP Index)

12

Bullion stocks rising, but most cross-border moves reflect EFP dynamics

Source: Bloomberg, LBMA

LBMA

COMEX

0200400600800

1,0001,200

Jul-16 Jan-17 Jul-17 Jan-18 Jul-18 Jan-19 Jul-19 Jan-20 Jul-20

Moz

0

100

200

300

400

Jan-15 Jan-16 Jan-17 Jan-18 Jan-19 Jan-20

Moz

13

ETP holdings hit record highs, driven by US funds

Source: Bloomberg, various ETF issuers

4

8

12

16

20

24

28

32

0

200

400

600

800

1,000

1,200Value ($bn)Moz US ETPs Other ETPs Value ($bn)

14

Global supply summary

Source: Metals Focus

1,019

962

-52.2

-15.7+0.2

+11.1

900

920

940

960

980

1,000

1,020

1,040

2019 MineProduction

ProducerHedging

Official Sector Scrap 2020E

Moz

Mined silver production in 2020 lower due to COVID

Mined silver production is forecast to decline 6.3% y/y in 2020 to 780Moz.

The biggest declines are expected in Peru, Chinaand Mexico due to COVID related disruptions.

Source: Metals Focus

-40 -30 -20 -10 0 10

PeruChina

MexicoArgentina

CanadaBoliviaRussia

United StatesAustralia

KazakhstanTurkey

MoroccoIndiaChile

Change from 2019 to 2020 (Moz)

700

750

800

850

900Moz

Silver Mine Supply COVID Loss

15

COVID disruption peaked in Q2.20

16*US statistics not yet available for AugustSource: Metals Focus, Country reported statistics

Mines in several major silver producing countries were forced to temporarily close due to COVID-19 lockdowns that were implemented from mid-March, however mining in other countries was allowed to continue as normal.

-80

-60

-40

-20

0

20

40

60

Peru Mexico Canada United States* Chile

Chan

ge F

rom

Janu

ary

2020

Silv

er P

rodu

ctio

n (%

)

Feb Mar Apr May Jun Jul Aug

Costs declined year-on-year in H1.20

17

Average AISC for primary silver mines in H1.20 was down by 3% y/y to $11.01/oz as higher by-product credits and the closure of some high-cost operations in 2019 offset increased costs from COVID-19 related disruption.

Note: costed production = c.80% of primary silver supplySource: Metals Focus – Silver Mine Cost Service

-20

-10

0

10

20

30

40

0 25 50 75 100

$/oz

Cumulative Silver Production - Market Share (%)

H1.20 AISCH1.19 AISC

H1.20 Silver Price ($16.64/oz)

Q3.20 Silver Price ($24.36/oz)

FX rates and metal prices push costs lower

Local currency weakness to the US dollar has constrained costs in many countries.

Higher gold prices have boosted by-productcredits for silver miners.

Note: AUD - Australian dollar, RUB - Russian ruble, MXN - Mexican peso, PEN - Peruvian solSource: Bloomberg, Metals Focus

70

80

90

100

110

120

130

140

Jan-20 Apr-20 Jul-20 Oct-20

Index

Gold Copper Lead Zinc

60

70

80

90

100

110

Jan-20 Apr-20 Jul-20 Oct-20

Index

AUD RUB MXN PEN

18

Higher prices will drive by-product credits up

19Source: Metals Focus – Silver Mine Cost Service

-20-15-10

-505

101520253035

Q1.12 Q1.13 Q1.14 Q1.15 Q1.16 Q1.17 Q1.18 Q1.19 Q1.20

$/oz

Gold Zinc Lead Copper AISC Silver Price Pre-credit Cost

CostsBy-product

creditsAverage costs for primary silver mines were lower q/q in Q2.20 due to higher cost operations in South America being closed, the upward pressure on costs of these mines returning to production will be offset by higher by-product credits in H2.20.

20

Global demand summary

Source: Metals Focus

993

931

-67.9

-44.4

-4.5 +5.0

+49.8

840

860

880

900

920

940

960

980

1,000

2019 Jewelry &Silverware

Industrial Photography Producer De-Hedging

PhysicalInvestment

2020E

Moz

21

Industrial demand, sharp H1 decline, but improved H2 trend

Source: Metals Focus

0

100

200

300

400

500

600

2010 2012 2014 2016 2018 2020E

Moz Electrical & Electronics Brazing Alloys Other Industrial

Source: Metals Focus, various 22

Photovoltaics: success in market diversity

201559GW,

8 GW-Scale countries

2019115GW,

16 GW-Scale countries

201017GW,

2 GW-Scale countries

Source: Metals Focus23

Jewelry & silverware exposed to weakness in India

0

50

100

150

200

250

300

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020F

Other jewelry India jewelry Other silverware India silverware

Moz

24

Bar and coin investment enjoys a strong recovery

0

50

100

150

200

250

300

350

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020E

Other Europe India US

Moz

Source: Metals Focus

25

Fifth uninterrupted surplus in 2020 of 31.5Moz, vs. 26Moz in 2019

Surplus

Deficit

Source: Metals Focus

10

15

20

25

30

35

40

-60

-40

-20

0

20

40

60

80

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020E

US$/ozMoz

Balance Silver Price

26

Silver bullion stocks continue to rise

Source: Bloomberg, LBMA

LBMA

COMEX

0200400600800

1,0001,200

Jul-16 Jan-17 Jul-17 Jan-18 Jul-18 Jan-19 Jul-19 Jan-20 Jul-20

Moz

0

100

200

300

400

Jan-15 Jan-16 Jan-17 Jan-18 Jan-19 Jan-20

Moz

27

Gold Forecast, 2020: $1,780, +28%

Source: Metals Focus

1,400

1,600

1,800

2,000

2,200

2,400

Apr-20 Jul-20 Oct-20 Jan-21 Apr-21 Jul-21 Oct-21

Spot/Average High Low

28

Silver Forecast, 2020: $20.60, +27%

Source: Metals Focus

10

15

20

25

30

35

40

Apr-20 Jul-20 Oct-20 Jan-21 Apr-21 Jul-21 Oct-21

Spot/Average High Low

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Disclaimer & Copyright @ Metals Focus Ltd, 2020Although every effort has been made to undertake this work with care and diligence, Metals Focus Ltd cannot guarantee the accuracy of any forecasts or assumptions. Nothing contained in this presentation constitutes an offer to buy or sell securities or commodities and nor does it constitute advice in relation to the buying or selling of investments. It is published only for informational purposes. Metals Focus Ltd does not accept responsibility for any losses or damages arising directly or indirectly from the use of this presentation.

Slide Number 1Silver now holding in a higher range, despite recent weaknessRelationship with base metals has strengthened recently, but…...the gold-silver dynamic continues to dominateThe gold:silver ratio had fallen noticeablyOverall though, it remains above the long-term averageThe macro environment remains pivotalThe macro environment remains pivotalThe macro environment remains pivotalInvestor positioning constrained by EFP issuesWhat happened to EFPs?Bullion stocks rising, but most cross-border moves reflect EFP dynamicsETP holdings hit record highs, driven by US fundsGlobal supply summaryMined silver production in 2020 lower due to COVIDCOVID disruption peaked in Q2.20Costs declined year-on-year in H1.20FX rates and metal prices push costs lowerHigher prices will drive by-product credits upGlobal demand summaryIndustrial demand, sharp H1 decline, but improved H2 trendPhotovoltaics: success in market diversity Jewelry & silverware exposed to weakness in India Bar and coin investment enjoys a strong recoveryFifth uninterrupted surplus in 2020 of 31.5Moz, vs. 26Moz in 2019Silver bullion stocks continue to riseGold Forecast, 2020: $1,780, +28%Silver Forecast, 2020: $20.60, +27%