THE SILVER MARKET IN 2011 PHILIP KLAPWIJK GLOBAL HEAD OF METAL ANALYTICS The Silver Institute, New York, 16 th November 2011
The Silver Market in 2011
May 17, 2015
The “World Silver Survey” is the authoritative publication on the silver market. The 2012 edition reports on all aspects of the silver market, including key areas such as demand, supply, investment, and price. Thomson Reuters GFMS produced the “World Silver Survey 2012” on behalf of the Silver Institute, which has been publishing the “Survey” since 1990. Thomson Reuters GFMS is recognized as the world’s leading precious metals markets consultancy.
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THE SILVER MARKET IN 2011
PHILIP KLAPWIJK
GLOBAL HEAD OF METAL ANALYTICS
The Silver Institute, New York, 16th November 2011
THE SILVER MARKET IN 2011
• 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
US
$/o
z
THE SILVER PRICE
Source: Thomson Reuters GFMS
US$/oz Average Year-on-year Intra-period
2010 20.19 37.6% 78.4%
1 Jan - 15 Nov 35.70 87.9% 10.9%
0
10
20
30
40
50
60
Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11
US
$ a
nd
Eu
ro/o
z US DOLLAR AND EURO PRICES
Source: Thomson Reuters GFMS
Euro/oz Average Year-on-year Intra-period
2010 15.17 44.7% 96.6%
1 Jan-15 Nov 25.45 77.5% 9.1%
Euro
US $
60
80
100
120
140
160
180
Jan-11 Mar-11 May-11 Jul-11 Sep-11 Nov-11
Ind
ex (
4th
Jan
uar
y 2
01
1 =
10
0)
Zinc Copper
Lead
SILVER, GOLD & BASE METALS PRICES
Gold
Source: Thomson Reuters GFMS
Silver
-0.4
-0.2
0
0.2
0.4
0.6
0.8
1
1.2
Jan-01 Jan-03 Jan-05 Jan-07 Jan-09 Jan-11
Co
rrel
atio
n C
oef
fici
ent
QUARTERLY CORRELATION OF DAILY SILVER
PRICE WITH GOLD & COPPER PRICES
Gold
Source: Thomson Reuters GFMS
Copper
20
30
40
50
60
70
80
90
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
GOLD/SILVER RATIO 2000 – 2011-TO DATE
(BASIS WEEKLY AVERAGE PRICES)
Source: Thomson Reuters GFMS
Average 60.5
1st Jan-15th Nov 2011 = 44.1
THE SILVER MARKET IN 2011
• PRICES
• DEMAND
• SUPPLY
• INVESTMENT
• PRICE OUTLOOK
WORLD SILVER DEMAND
Source: Thomson Reuters GFMS
Industrial 46%
Photography 7%
Jewellery & Silverware
20%
Investment 27%
Industrial 48%
Photography 6%
Jewellery & Silverware
20%
Investment 26%
2010 Actual 2011 Forecast
WORLD SILVER FABRICATION
FORECAST ANNUAL CHANGES: 2011 LESS 2010 M
illio
n ou
nces
Source: Thomson Reuters GFMS
-10
-5
0
5
10
15
20
25
30
Industrial Coins Jewellery & Silverware
Photographic
DEMAND SUMMARY • Total fabrication demand forecast to rise by 4% in 2011
• After 2010’s stellar rise, growth in industrial offtake has slowed, on the back of the tragedy in Japan, the end of stock replenishment and, more recently, slower economic growth
• Despite higher prices, jewellery up a little in 2011, due to ongoing market penetration in the youth demographic and substitution at the expense of gold
• Both silverware and photographic demand maintain their long term trend of decline, with this exacerbated by high prices
• Coin demand will rise to a new record level this year, reflecting strong investor interest.
THE SILVER MARKET IN 2011
• PRICES
• DEMAND
• SUPPLY
• INVESTMENT
• PRICE OUTLOOK
WORLD SILVER SUPPLY
Source: Thomson Reuters GFMS
Mine production
71%
Government Sales
4%
Producer Hedging
5%
Scrap 20%
Mine production
74%
Government Sales
1%
Producer Hedging
3%
Scrap 22%
2010 Actual 2011 Forecast
WORLD SILVER SUPPLY
FORECAST ANNUAL CHANGES: 2011 LESS 2010 M
illio
n ou
nces
Source: Thomson Reuters GFMS
-50
-40
-30
-20
-10
0
10
20
30
40
50
Mine production Net Government Sales
Net producer hedging
Scrap
WORLD SILVER MINE PRODUCTION M
illio
n ou
nces
Source: Thomson Reuters GFMS
0
100
200
300
400
500
600
700
800
900
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011F
Primary
By-product
4% increase forecast for 2011 Growth of almost 190Moz in 2002-2011F
MINE PRODUCTION: WINNERS AND LOSERS IN 2011*
-12.0
-8.0
-4.0
0.0
4.0
8.0
12.0
16.0
Mil
lio
n o
un
ces
Mexico China Russia
United States Peru Australia
Source: Thomson Reuters GFMS * Figures represent year-on-year change, i.e. 2011 less 2010
OUTSTANDING DELTA ADJUSTED PRODUCERS HEDGE POSITION
0
20
40
60
80
100
120
140
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011F
Mil
lio
n o
un
ces
Source: Thomson Reuters GFMS
SUPPLY SUMMARY
• Total supply forecast to be marginally higher year-on-year
• Mine production expected to rise by 31Moz or 4% in 2011, driven by a strong project pipeline, much higher precious metal prices and a healthy performance by the base metals sector
• Producer hedging will remain an important source of supply in 2011, albeit slightly lower year-on-year
• Scrap supply forecast to rise by 20Moz or 9% in 2011, despite ongoing declines from the photographic sector
• Government sales largely unpredictable but estimated to have fallen sharply in 2011 to-date.
THE SILVER MARKET IN 2011
• PRICES
• DEMAND
• SUPPLY
• INVESTMENT
• PRICE OUTLOOK
600
700
800
900
1000
1100
1200
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011F
Mil
lio
n o
un
ces
FROM “DEFICIT” TO “SURPLUS”
DEMAND (fabrication excluding coins)
SUPPLY (mine production + scrap)
Source: Thomson Reuters GFMS
WORLD SILVER INVESTMENT* AND VALUE
0
2
4
6
8
10
12
-
50
100
150
200
250
300
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011F
US
$ B
illion
s
Mil
lio
n o
un
ces
*World Investment is the sum of implied net investment and coins & medals
Investment Value
Source: Thomson Reuters GFMS
SILVER ETF HOLDINGS M
illio
n ou
nces
0
100
200
300
400
500
600
700
2006 2007 2008 2009 2010 2011
iShare
ZKB
ETF Securities*
Other**
577Moz at end-October 2011, down by 23Moz from end-2010
*Includes ETFS London, Australia, NYSE, Glitter and WITE ** Includes Julius Baer, Mitsubishi, Sprott, Claymore, Central Fund of Canada, Silver Bullion Trust, DB Physical Silver, iShare ETC, Source: Respective issuers
INVESTORS’* NET POSITIONS IN COMEX SILVER FUTURES
10
20
30
40
50
60
70
80
90
2005 2006 2007 2008 2009 2010 2011 0
1000
2000
3000
4000
5000
Net
po
siti
on
s (c
on
trac
ts,
tho
usa
nd
) C
ents/o
z
Comex Settlement Price
* non-commercial & non-reportable net positions in futures taken as proxy for investors’ positions; Source: CFTC
-200
-150
-100
-50
0
50
100
150
Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jun-11 Jul-11 Aug-11 Sep-11 Oct-11 Nov-11
Mil
lio
n o
un
ces
Coins*
Comex
ETFs
*Excludes medals & some coins Source: Thomson Reuters GFMS
MONTHLY CHANGES IN SILVER INVESTMENT
INVESTMENT SUMMARY
• Investor activity the main factor behind rally in price to $50/oz in late April and sharp corrections in early May and late September
• Silver benefits from gains in gold, with similar ‘precious metal’ motivations at work, namely the sovereign debt crisis, inflation fears, loose monetary policies, weak US dollar etc.
• Copper also an influence, with silver often regarded as an ‘industrial metal’; lately therefore the white metal facing downside pressure, given increasingly bearish economic outlook
• For some, silver is a more ‘economical’ alternative to gold (~45 x lower unit price)
• Silver’s greater volatility and trading range than gold makes it attractive to certain investors.
THE SILVER MARKET IN 2011
• PRICES
• DEMAND
• SUPPLY
• INVESTMENT
• PRICE OUTLOOK
PRICE OUTLOOK Negatives: • Mine production continues to grow (+190Moz in 2002-2011)
• Ongoing secular decline in photography (though mainly offset by lower photo scrap) and silverware
• Sovereign debt concerns and liquidity constraints could hit ‘real economy’ and industrial demand
• Large and growing fundamental market surplus (+/- 230 Moz forecast for 2011)
Positives: • Investor interest remains strong due to favourable financial backdrop and in spite of two major sell-offs
this year
• Underlying secular growth in industrial demand continues, with much of this relatively price-insensitive, particularly in the short-run
• Little threat to prices from higher government sales or even gains in scrap supply
Price forecasts: • We now forecast an average price of $35.66 in 2011 (1st Jan - 15th Nov average $35.70).
Our short-term forecast is that through to year-end silver will trade between $31-$38.and.
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.
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