Silver

price surge set to continue on lower mine supplies, growing green demand

PRECIOUS METALS | Tight physical market strains primary supplies

BY HENRY LAZENBY

Global mined silver production has fallen 10% below the record highs of the past decade and underpins the recent price rally and potential gains, a new Bank of America analysis suggests.

Silver miners cut production after a drawn-out bear market in the last decade, and guidance from the largest silver producers suggests that silver output will not return to previous highs soon, the bank says in its May 11 Global Metals Weekly report.

“Factoring in guidance from the largest silver miners covered by the bank’s equities research team, we believe supply will remain capped going forward,” Global Commodity Research team lead and report co-author Michael Widmer said.

Silver prices have leapt 21% yearly, reaching US$25.7 per oz. In early April and US$26.05 per oz. on May 4.

The bank flags tightness on the physical market as compounding the already constrained primary supply. The bank’s data demonstrates that the volume of metal stored at the Chicago Mercantile Exchange warehouses and the London Bullion Market Association vaults has fallen steadily.

This has helped to offset weakness in traditional industrial demand, with metal imports from Japan and the U.S. weakening. China remains a net exporter of refined silver, while India, which imported record volumes last ect in Argentina. Now, a subsidiary of China’s Sinomine, which owns the Tanco lithium and tantalum mine in Manitoba, wants to build a $170-million concentrator.

“Is that going to be allowed? I don’t know. I have no idea which way they’re going to jump,” McKoen said. “Having state-owned enterprises in your capital pool for your company has just generated in Canada a significant price that did not exist prior.

“The phone calls with these national security bodies are bizarre,” he said. “They don’t do Zoom calls because they don’t want you to know anybody on there. You hear all these numbers dial in but they don’t say who they are. They sit there silently and then someone from Industry Canada asks you questions.” summer, has now seen demand return to more normal levels.

The bank is bullish on rising offtake from green sectors but notes investors have thus far mainly taken a wait-and-see approach. It expects demand from green technologies, including solar and electric vehicles, to increase steadily.

“This should help keep the market undersupplied,” Widmer notes.

Widmer says investors are often the marginal price drivers. Still, confidence in the white metal had taken a hit in recent years when bullish pitches around ”promising” applications, like silver usage in bandages, didn’t deliver.

While U.S. coin sales are not very high, coin premia are trading at about US$1 per oz. above the levels seen in the past decade, the bank notes.

Miners’ production cuts and increased demand from EVs and solar panels have rebalanced the silver market and prices are now finding support, even without much non-commercial demand, Widmer argues.

To that point, investment assets under management at physically backed exchange-traded funds have fallen since last year’s third quarter, even as silver prices have rallied. “Yet, with fundamentals strengthening, there is scope for increased investor buying, which may provide additional momentum to silver prices,” Widmer said.

The bank forecasts silver to average US$24.55 this year and US$25.75 per oz. in 2024. TNM

Industry majors increased their participation in equity offerings by 50% and takeovers of juniors by 180% in 2021 compared to the previous year’s M&A activity, said John Wilkin, a partner with law firm Blake, Cassels & Graydon. GM’s investment in Lithium Americas brings a new dynamic because it’s focused on securing supply, diffeing from other investors seeking a future sale of the firm, he said.

“In the last couple of years, we’ve seen a lot of activity by the majors investing in junior stories, so earnins, joint ventures and small acquisitions and strategic investments are back,” Wilkin said. “We’re seeing Tesla and many others moving to a different point in the risk profile of a project and looking at doing streaming transactions as well.”