2019 silver market outlookpage 2 2019 silver market outlook be required to drive both shorter and...
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For more information on silver, and how specific gold, silver, palladium and platinum investments may be used to
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2 0 1 9 S I L V E R M A R K E T O U T L O O K
Copyright CPM Group LLC 2019.These reports are produced by CPM Group for distribution by Monex Deposit Company. The rights to distribution, reproduction, and redistribution rights are ceded to Monex Deposit Company by CPM Group for these reports. These reports are not for reproduction or retransmission without written consent of Monex Deposit Company. The intellectual content and property of these reports remain the property of CPM Group, and they are not for reproduction or retrans-mission without written consent of CPM Group. The views expressed within are solely those of CPM Group. Such infor-mation has not been verified, nor does CPM make any representation as to its accuracy or completeness. Any statements non-factual in nature constitute only current opinions, which are subject to change. While every effort has been made to ensure that the accuracy of the material contained in the reports is correct, CPM Group cannot be held liable for errors or omissions. CPM Group is not soliciting any action based on it. Information contained here should not be relied on as specific investment or market timing advice. At times the principals and associates of CPM Group may have long or short positions in some of the markets mentioned here.
Page 1 2019 Silver Market Outlook
Silver Strong global economic growth helped silver fabrication to continue rising for the sixth consecutive year during 2018. Silver fabrication demand is an important funda-mental in providing downside support to silver prices. While silver fabrication demand is an important market fundamental, investment demand has a more significant impact on silver prices. The healthy global economic growth that worked well for fabrication demand was what deterred investors from buying silver aggressively. Silver had a difficult 2018, with prices averaging $15.71 during the year basis the nearby active Comex contract. This average was down 8.5% from the average price of 2017.
During 2018, the gold:silver ratio reached near historical highs. In November 2018 the ratio stood at 85.5, which was the highest level that the ratio had reached since Sep-tember 1993. The increase in the ratio highlights how much silver has lagged gold in 2018. The same macro-economic factors that influence gold in a positive way also affect silver prices in a positive fashion. Based on this observation, the silver price has a lot to catch up. There are several economic, political, and financial market concerns that investors have, and these are not fully reflected in the price of gold and are re-flected to an even lesser degree in silver prices at pre-sent. These risks are forecast to drive gold higher going forward. They also are expected to drive silver prices up, even more strongly at some point as silver prices catch up with gold. A glimpse of this was seen in December when
the two metals prices rose and the ratio slipped from 85.5 in November to 82.7 in December.
Silver needs both longer term and shorter term investors to come together and purchase the metal forcefully to drive silver prices higher. While both types of investors have been active in the market both types of investors have shown price sensitivity. Both shorter term and longer term investors have shown interest in buying when prices have declined. That said, shorter term investors have sold at the slightest sign of weakness when prices have moved higher, locking in profits, and longer term investors have retracted from making fresh purchases when prices have risen. Both investors seem to be lacking confidence in a sustained upward move in silver prices. Healthy economic conditions and strong equity markets had further reduced any urgency on part of both types of investors to bid up the price of silver.
The market surplus (difference between total supply and fabrication demand) which is absorbed by investors was being absorbed and held by longer term investors who see numerous macroeconomic, financial market, and po-litical risks on the horizon and see value in holding the metal as insurance against these risks. However, while these investors are interested in holding the metal for the long term they are not interested in bidding up the price of metal in the process. Their participation in the market has therefore been one that helps support prices rather than drive prices up sharply. A realization of risk would
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00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19
Silver Prices
$ / OzComex Silver Prices, Daily, From 1 January 2000 to 29 January 2019
$ / Oz
Silver Prices Experience Extended Period Of Price Compression
Page 2 2019 Silver Market Outlook
be required to drive both shorter and longer term inves-tors into the market in a way that they would be willing to bid up the price of silver.
In 2018, investors were net buyers of 41.3 million ounces. This was a decline from 2017’s 50.2 million ounces in net investor purchases. These levels of invest-ment are at the lower end of recent levels of invest-ment demand and are not sufficient to drive the price of silver strongly higher, but are important in keeping silver prices supported. While the annual net additions to investor silver investments have declined in recent years, it is still a better place for the silver market than the net reductions that were seen in the 1990s and early
Silver Investment Demand
Silver Investment Demand
2000s, when investors were net sellers of the metal as a group.
Investor interest in silver is expected to rise during 2019, which should help carry silver prices higher during the year. Silver’s underperformance relative to gold makes the metal an attractive undervalued safe haven and hedge against various political and macroeconomic uncertain-ties. Slowing global economic growth and reduced mone-tary and fiscal stimulus from major economies are likely to increase the probability of various economic and finan-cial market risks. Total net investment demand is fore-cast to reach 52.2 million ounces during 2019.
05
101520253035404550
98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18
Million Ounces
Annual U.S. Mint Silver Coin Sales to DealersDecember 2018
-250
-200
-150
-100
-50
0
50
100
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250
0
10
20
30
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60 63 66 69 72 75 78 81 84 87 90 93 96 99 02 05 08 11 14 17
Million Ounces$/Ounce
Price (LHS)
Net Changes in Inventories
Silver Market Balance
Net Additions
Net Withdrawals0
20
40
60
80
100
120
0
20
40
60
80
100
120
72 76 80 84 88 92 96 00 04 08 12 16
Monthly Gold/Silver Price Ratio
Ratio RatioDecember 2018
0%
5%
10%
15%
20%
25%
30%
35%
Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18
Silver American Eagle
Silver 100 Oz. bar
Dealer Premia on U.S. Mint Silver CoinsDaily Data through 31 Dec. 2018
Silver Supply
Page 4 2019 Silver Market Outlook
Supply
Total silver supply stood at 978.1 million ounces in 2018, essentially flat from 2017 levels. Total supply during 2017 and 2018 was at its weakest levels since 2011. The suspension of the Escobal mine during 2017 has resulted in taking around 20 million ounces of silver supply out of production. Secondary supply of the metal has also been flat over the past couple of years, with relatively softer prices weighing on this segment of supply being offset by improved recovery of the metal from electronics. The reduction in total supply is a supportive fundamental of silver prices.
Total supply is expected to rise during 2019 to 993 mil-lion ounces, higher than 2018 levels but lower than levels seen prior to 2017. The increase is expected to be driven primarily by an increase in scrap supply, which is ex-
pected to rise in response to the stronger silver prices and the ongoing effort to better recover the metal from the electronics sector. Mine supply, meanwhile, is forecast to decline slightly during the year.
0
100
200
300
400
500
600
700
800
900
95 98 01 04 07 10 13 16
Million Ounces
World Silver Mine ProductionAnnual, YTD Data Through August 2018
01002003004005006007008009001,0001,100
0100200300400500600700800900
1,0001,100
78 81 84 87 90 93 96 99 02 05 08 11 14 17
Secondary
Mine Production
Million Ounces
Net Exports from Tran. Government Disposals
Million Ounces
Total Annual Silver SupplyProjected Through 2019
0
50
100
150
200
250
300
350
400
77 81 85 89 93 97 01 05 09 13 17
South Asian ExportsIndian ScrapDemonetized CoinsOld Scrap
Million Ounces
Annual Secondary Supply Projected Through 2019
0
5
10
15
20
25
30
35
40
2013 2014 2015 2016 2017 2018 2019p
Million Ounces
Annual Additions to Silver Mine Capacity from Near-Term Mine Development Projects
Page 5 2019 Silver Market Outlook
Fabrication Demand
In 2018 silver fabrication demand rose to 936.9 million ounces, up 1% from 2017 levels. Two of the largest silver uses, jewelry and silverware and electronics, rose by 1.8% and 2.0%, respectively. Growth in jewelry demand was driven in part by the healthy global economic growth which aided discretionary purchases like jewelry. Silver is used as an alloy in both gold jewelry and white gold. The relatively stronger growth in gold prices and the strong increase in the price of palladium during 2018 also is expected to have benefited the use of silver in jewelry alloys.
Silver demand from the electronics industry continued to be supported by a healthy economic landscape, increased
electrification and computerization of the world, and the resultant strong demand for computer chips.
Demand from the solar panel industry grew at a slower pace during 2018; there continued to be growth from the sector, nonetheless. Silver demand from the sector reached a record 107.3 million ounces during 2018, up 1.2% from 2017 levels. Solar panel manufacturers contin-ued to work on ways to reduce the silver content per solar panel, but these efforts were offset by the ongoing in-crease in demand for solar panels.
Demand from the photography industry continued to de-cline and was the primary headwind to total silver fabri-cation demand during 2018.
Fabrication Demand
01002003004005006007008009001,000
0100200300400500600700800900
1,000
77 80 83 86 89 92 95 98 01 04 07 10 13 16 19p
PhotovoltaicImports into Trans EconomiesOther CountriesOther UsesBiocidesSuperconductorsElectronics
Million OuncesMillion Ounces
Photography
Jewelry and Silverware
Annual Fabrication DemandProjected Through 2019
0
50
100
150
200
250
300
350
80 83 86 89 92 95 98 01 04 07 10 13 16
South AmericaOceaniaNorth & Central AmericaEuropeAsia & Middle East
Mln OzProjected Through 2019Annual Total Jewelry and Silverware Demand
0
50
100
150
200
250
0
50
100
150
200
250
89 91 93 95 97 99 01 03 05 07 09 11 13 15 17 19p
Million Ounces
Silver Demand for Electronics and Batteries
Million Ounces
-50%
-30%
-10%
10%
30%
50%
70%
Jan-01 Jun-03 Nov-05 Apr-08 Sep-10 Feb-13 Jul-15 Dec-17
World Semiconductor Sales GrowthMonthly, Jan. 2001 to November 2018
Page 6 2019 Silver Market Outlook
Silver fabrication demand is forecast to continue rising during 2019, making it the seventh consecutive year that the metal’s fabrication demand will rise. The rate of in-crease is expected to slow relative to the preceding six years, however. The primary drivers of growth are ex-pected to be the electronics and solar panel industry. The slightly higher silver price and somewhat slower global economic growth are expected to weigh on jewelry de-mand. Total fabrication demand during the year is fore-cast to reach 941 million ounces during 2019, the highest level of demand since 2005.
Fabrication Demand
Note: 'New Demand' represents silver demand for new production capacity addedto global ethylene oxide production capacity. 'Replacement Demand' represents additional silver added to existing capacity after refining losses.
0
5
10
15
20
25
0
5
10
15
20
25
90 93 96 99 02 05 08 11 14 17
Replacement DemandNew Demand
Silver Demand for Ethylene Oxide Production Catalysts
Mln Oz Mln Oz
0
50
100
150
200
250
300
0
50
100
150
200
250
300
89 91 93 95 97 99 01 03 05 07 09 11 13 15 17 19p
Million Ounces Million Ounces
Basic Photography
X-ray
Graphic Arts
Silver Fabrication Demand for PhotographyProjected Through 2019
0
20
40
60
80
100
120
0
20
40
60
80
100
120
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19p
Mln Oz Mln Oz
Annual Silver Demand for Photovoltaic Solar PanelsProjected Through 2019
0.000.200.400.600.801.001.201.401.60
Sep-09 Sep-11 Sep-13 Sep-15 Sep-17
Multi-Crystalline Silicon Module Overall Average Spot PriceWeekly, Through 21 January 2019
$/Watt
Note: Average price is for solar panel modules of 156 mm side and 180 - 200 micron thickness. Source: Bloomberg
Page 7 2019 Silver Market Outlook
Conclusion
Silver prices have been building a strong base over the past several years. Examining a longer term price chart, it is visible that the silver price has been fairly com-pressed, essentially trading between $14 and $18 since 2015. Typically markets that move in such a compressed fashion break out strongly on one side or the other. The possibility that silver prices break meaningfully below this range looks very slim given the repeated investor interest in buying the metal when prices approach the lower end of this range. There are many good reasons for this, too, given the numerous unresolved financial mar-ket, economic, and political issues. Prices are more likely to breakout to the upside from this longstanding trading range given the numerous risks.
200
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1,000
1,100
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1,000
1,100
60 67 74 81 88 95 02 09 16
Supply
Fabrication Demand
Million OuncesMillion Ounces
Silver Supply and Fabrication Demand Annual Data, Projected Through 2019
Silver Supply and Fabrication Demand
Page 8 2019 Silver Market Outlook
Million Ounces
Silver Statistical Position
*Million Ounces; Notes: Totals may not equal the sum of categories due to rounding. Mine production in Poland, Bulgaria, Romania, Hungary, the Czech Republic, and Slovakia is included in "other" mine production; Photography, jewelry and silverware, electronics, solar panels, and 'other' industrial use reflects demand in Europe, the United States, and Japan.; These sectors include Canada from 1979, Mexico from 1982, Hong Kong from 1985, Thailand from 1986, India from 1987, Australia, Brazil, Peru, Colombia, Argentina, Chile, Korea, Pakistan, and Bangladesh from 1989, China from 2000, and Taiwan from 1990; Demand excludes the transitional economies, except for imports.; There may be discrepancies due to rounding; p - projections; NM - Not meaningful; Source: CPM Group 29 January 2019
Supply 2012 2013 2014 2015 2016 2017 2018 2019pMine Production Mexico 147.9 157.5 164.1 172.6 163.0 172.0 180.9 170.3 China 122.2 131.8 135.0 136.3 140.2 140.3 142.3 143.4 Peru 111.9 118.1 121.4 131.9 140.3 137.4 139.6 142.5 Australia 57.9 59.2 59.4 44.1 42.7 34.6 34.8 34.8 United States 33.8 33.8 37.3 35.0 36.6 33.4 35.3 35.5 Canada 22.7 19.9 15.9 12.2 12.9 14.2 14.5 14.9 Other 222.5 231.6 264.8 268.2 266.2 243.4 229.2 231.8 Total 718.8 751.8 797.9 800.4 801.9 775.4 776.6 773.2 % Change Year Ago 5.9% 4.6% 6.1% 0.3% 0.2% -3.3% 0.2% -0.4%Secondary Supply Old Scrap 273.8 221.0 205.5 195.4 191.9 190.1 189.5 207.1 Coin Melt 1.0 1.0 1.5 1.5 1.5 1.5 1.5 1.5 Other Supply 1.0 Indian Scrap 8.0 8.0 8.0 8.1 9.6 10.4 10.5 11.4 Total 283.8 230.0 215.0 205.0 203.0 202.0 201.5 220.0 % Change Year Ago 0.8% -19.0% -6.5% -4.7% -1.0% -0.5% -0.2% 9.2%Other Supply Government Disposals 0 0 0 0 0 0 0 0 Net Exports from
Transitional Economies 1 0 0 0 0 0 0 0 Total 1.0 0 0 0 0 0 0 0 % Change Year Ago -77.5% -100.0% N/M N/M N/M N/M N/M N/MTotal Supply 1,002.6 981.8 1,012.9 1,005.4 1,004.9 977.4 978.1 993.2% Change Year Ago 4.4% -2.1% 3.2% -0.7% 0.0% -2.7% 0.1% 1.5%Fabrication Demand Photography 89.7 82.0 77.4 72.5 68.1 62.5 59.6 56.8 Jewelry & Silverware 238.8 266.7 279.4 297.4 299.1 303.4 308.7 306.4 Electronics and Batteries 216.7 218.4 223.7 223.8 226.1 229.6 234.0 240.8 Solar Panels 41.2 47.6 50.4 60.8 86.2 106.0 107.3 107.9
Other Uses 209.1 212.7 213.8 214.5 216.7 220.3 221.8 223.6 Other Countries 9.0 9.5 9.7 5.0 5.0 5.5 5.5 5.5Total Fabrication Demand 804.4 836.8 854.4 873.9 901.3 927.2 936.9 941.1 % Change Year Ago -2.0% 4.0% 2.1% 2.3% 3.1% 2.9% 1.0% 0.5%Net Surplus or Deficit 198.2 145.0 158.6 131.5 103.6 50.2 41.3 52.2
CPM Group LLC
CPM Group is a fundamentally based commodities research shop. We develop our own proprietary estimates of gold, silver, platinum, and palladium supply and demand on a global basis, drawing on every resource we can find, including our own extensive list of contacts involved in precious metals around the world. We have been doing this sort of research and analysis since the 1970s, far longer than anyone else in the business. We also undertake research in specialty metals, base metals, energy and agricultural commodities. We are known for our basic fundamental research, a wide range of financially oriented consulting services, and our expertise in using financial derivatives to structure financing for produc-ers, refiners, industrial users, and investors interested in either hedging or investing in commodities.
Our investment philosophy is simple: We are value investors who base our decisions on what to buy, sell, hold, or avoid on the fundamentals of each asset, and the macro-economic, financial and political environmental factors that we expect will affect that asset’s value. We have concerns, expressed in this report and elsewhere, about long-term imbalances in government deficit spending, public and private debt, and a wide range of other economic and political factors. We don’t expect the world’s financial system to collapse, however. That is not the way the world tends to work. More likely eco-nomic outcomes in the real world lie between the extremes of cataclysmic collapses and nirvana. We advise our clients – and practice what we preach – to have some of their wealth in gold and silver as an insurance policy against a catastrophic failure, but we also advise them to invest other portions of their money in precious metals and other assets based on the assumption that that sort of failure does not occur. We focus on investing based on likely scenarios, but with an eye always open to outlying events that take the world’s markets by surprise. We have watched investors who were so worried about a collapse that they missed some of the largest stock and bond market rallies of all times over the past 30 years, while watching their safe haven assets fluctuate eight-fold in value up and down, and then up and down again. We prefer our clients to buy and sell precious metals and other assets based on cyclical and other developments, while also maintaining that long-term insurance policy in case the levee breaks.
CPM Group LLC168 7th St.Suite 310Brooklyn, NY11215USA
Published 2/10/19
For more information on silver, and how specific gold, silver, palladium and platinum investments may be used to
diversify your portfolio, please contact:
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