W ld Silver World Sil Survey S 2011 Philip Klapwijk
Chairman GFMS Limited Chairman, New York, York 7th April 2011
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World Silver Survey 2011 Prices Demand Supply Investment Outlook
for 2011
The Silver Price 40 US$/oz 35
US S$/oz
30
Intra-Average Year Year--on on-- Intra year period
2010
20.19
37.6%
78.4%
Jan--Mar 2011 Jan
31.86
88.2%
23.5%
25 20 15 10 5 Jan-06
Source: Thomson Reuters
Jan-07
Jan-08
Jan-09
Jan-10
Jan-11
US Dollar and Euro Prices 40
Intra-Average Year Year--on on-- Intra year period
€/oz
US$/ /oz and Euro €/ /oz
35 30
2010
15.23
44.6%
92.0%
Jan--Mar 2011 Jan
23.20
89.5%
15.9%
25 20 15
US$
10
Euro
5 0 Jan-06 Source: Thomson Reuters
Jan-07
Jan-08
Jan-09
Jan-10
Jan-11
Silver, Gold and Base Metals Prices 220 silver
In ndex (Ja an 10=10 00)
200 180
tin
160 nickel 140
copper
120
gold
100
zinc
80 60 Jan-10
p Apr-10
Source: GFMS, Thomson Reuters
Jul-10
Oct-10
Jan-11
Quarterly Correlation of Daily Silver Prices with Gold and Copper Prices 1.0 Gold
Corrrelation C Coefficieent
0.8 06 0.6 0.4 0.2 00 0.0 -0.2 -0.4 Jan-96 Source: GFMS
Copper
Jan-98
Jan-00
Jan-02
Jan-04
Jan-06
Jan-08
Jan-10
Gold / Silver Ratio 19681968-2010
100 90 80 70 60 50
Average 53:1
40 30 20 10 0 1968 Source: GFMS Ltd.
1973
1978
1983
1988
1993
1998
2003
2008
Gold / Silver Ratio 2001– 2001–20112011-to to--date (basis weekly average prices)
90 80 70
Average 62:1
60 50 40
Jan-Mar 2011 = 44:1
30 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Source: GFMS Ltd.
Real and Nominal Silver Prices (real US$ price in constant 2010 terms)
60 1980 average: $55.53 $55.53
50
1980’s peak of $49.45 equals to over $130 in real 2010 terms
US$/oz
40
2010 average: $20.19 $20 19
30 20
Real Price
10
Nominal Price 0 1975
1980
Source: GFMS, Thomson Reuters
1985
1990
1995
2000
2005
2010
World Silver Survey 2011 Prices Demand Supply Investment Outlook
for 2011
World Silver Fabrication Demand in 2010 Total Fabrication Demand in 2010: +12.8% to 878.8 Moz Coins & Medals 12% Silverware S ve wa e 6%
Jewelry 19%
Photography 8%
Source: GFMS Ltd.
Industrial Applications 55%
World Silver Fabrication Annual Changes: 2010 less 2009 100
Million o M ounces
80 60 40 20 0 -20 Industrial Photography A li i Applications Source: GFMS Ltd.
Jewelry
Silverware
Coins & M d l Medals
World Silver Fabrication 10--Year 10 Y Ch Changes: 2001 2001--2010
200 150
+39% + 233%
Million n ouncess
100 50 0 -4%
-50
- 53%
-100 -150
- 66%
-200 Industrial Photography Applications Source: GFMS Ltd.
Jewelry
Silverware
Coins & Medals
Industrial Fabrication by EndEnd-Use 1990: 272.6 Moz Other
2010: 487.4 Moz
E & E excluding Ph t Voltaics Photo V lt i
E & E excluding Photo Voltaics Other
Photo Voltaics Brazing Alloys andd Solders S ld Ethylene Oxide
Source: GFMS Ltd.
Ethylene Oxide Brazing Alloys and Solders
Photo Voltaics
Industrial Fabrication 500
Millio on ouncees
400
300
200
100
0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Source: GFMS Ltd.
Annu ual % ch hange
Economic Indicators 12% 10% 8% 6% 4% 2% 0% 2% -2% -4% -6% -8% -10% 12% -12% -14%
Global GDP Growth
OECD Industrial Production Growth
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 Source: IMF, OECD
Numb ber of sh hipmentss (million ns)
Global Semiconductor Billings 350
Other Asia/Pacific
300
Japan
250
Europe Americas
200 150 100 50 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Source: SIA
Industrial Fabrication
Industrial offtake rebounded byy 20.7% to 487.4 Moz in 2010, a fraction shy of the prepre-crisis record in 2008. Main drivers of the strong rise were continued robust emerging market economies growth, industrialized world’s recoveryy from recession and pipeline pp restocking. g Most areas of endend-uses enjoyed gains, particularly in photo voltaic, EO catalysts and the automobile industry. The only main area that disappointed was construction in industrialized countries. All regions, bar the Indian SubSub-continent, saw gains, with those in Japan being the greatest. greatest
Jewelry & Silverware Fabrication 300
Million n ounces
250
Silverware
200 150
Jewelry
100 50 0
2001 Source: GFMS Ltd.
2003
2005
2007
2009
Jewellery Fabrication: Silver, Gold, Platinum
% chaange dem mand : 20001 to 2010
10--Year 10 Y Percentage P t Ch Changes in i Demand: D d 2001 to t 2010 0 -5 -10 -15 -20 -25 -30 -35 Silver Source: GFMS Ltd.
Gold
Platinum
Jewelry & Silverware
Jewelry: Demand rose by 5.1% to 167.0 Moz, its first increase of substance since 2003 2003. Higher offtake was primarily due to rising consumer spending in many emerging i markets, k t particularly ti l l China, Chi and d a recovery in i consumption in industrialized countries. Demand d was also l supported d by b substitution b gains at the h expense of gold. Silverware: Offtake dropped by a hefty 14% to 50.3 Moz, a Silverware: result of lower demand in India on higher prices coupled with ongoing structural decline in western markets, although part of the fall was offset by gains in China and Russia.
Consumer Film and Digital Camera Sales 5
160
Billlions of rrolls/disk ks
Digital Cameras
4
140 120 100
3
80
2
60 40
1
20
0
0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Source: Photofinishing News Inc., Lyra Research Inc.
Digital C Camera a Sales (m millions))
Consumer Film
Photography g p y
Photographic demand for silver posted its smallest loss in nine years in 2010, falling by 8% to 72.7 Moz. Its share of total fabrication demand fell to just above 8%, compared to 30% in 1990. The more modest decline in 2010 was due to only a slight drop in demand from the medical sector, the l largest t area these th d days off photophoto h t -related l t d silver il demand. d d In contrast, global demand for film rolls fell by 25%, driven by ongoing migration to digital systems.
World Silver Survey 2011 Prices Demand Supply Investment Outlook
for 2011
World Silver Supply in 2010 Total Supply in 2010: Up 14.6% at 1,056.8 Moz Hedging 6% Scrap 20%
Government Sales 4%
Source: GFMS Ltd.
Mine Production 70%
World Silver Supply 100
Annual Changes: 2010 less 2009
Million n ounces
80 60 40 20 0 -20 Mine Production
Source: GFMS Ltd.
Government Sales
Old Silver Scrap
Producer Hedging
World Silver Mine Production Growth of 129.7 Moz or 21% from 2001-2010
800 700
Million n ounces
600 500 400 300 200 100 0 2001 Source: GFMS Ltd.
2002
2003
2004
2005
2006
2007
2008
2009
2010
Mine Production by Source Metal Winners and Losers: 2010 less 2009
14 12 Million n ouncess
10 8 6 4 2 0 -2 -4 4 -6 Lead/Zinc Source: GFMS Ltd.
Primary
Other
Copper
Gold
Mine Production by Region
Winners and Losers: 2010 less 2009 12
Millio on ouncees
10 8 6 4 2 0 -2 -4 -6
North America*
Rest of the W ld World
Source: GFMS Ltd.; *includes Mexico
Asia & CIS
Latin America
Mine Production
World silver mine output rose by 2%, or 17.6 Moz last year to a new record high of 735 year, 735.9 9 Moz Moz.
An increase of 5% was recorded from both the lead/zinc and primary silver sectors.
Many increases came not from 2010 starts, but from the build up of production at projects which began operations in 2009, 2009 such as the Peñasquito sulfide plant and Palmarejo.
Largest gains seen in Mexico (+15.3 Moz), China (+10.0 Moz) and also Australia (+7.4 Moz), with the most noticeable decline in Peru ((-7.4 Moz).
Producer Hedging g g
2010 saw a marked return to net producer hedging, with a net 61 61.1 1 Moz of supply throughout the year. year The bulk of this occurred in the fourth quarter. I the In th main i hedging h d i was conducted d t d by b byby b -product d t silver il producers, to risk manage a nonnon-core revenue stream. I Important t t additions dditi to t the th global l b l hedge h d book b k seen from f Frisco, Barrick and Volcan. Volcan. Four consecutive years off d de-hedging deh d activity h had d left l f the h end--2009 hedge book at a two end two--decade low. As such th there was littl little in i the th way off deliveries d li i to t provide id an offset, as several producers moved to lock in higher prices i att th the ttailtailil-end d off 2010 2010.
Scrap Supply
S Scrap supply l increased i d by b 14% to t a new record d high hi h off 215 Moz in 2010 2010,, despite a continued slide in silver recovered from photographic applications. Much of the rise was due to higher g scrap p receipts p from the industrial sector, itself a result of tighter environmental legislation eg s at o coup coupled ed with t a ssharp a p rise se in ssilver e p prices. ces Recycling from jewelry and silverware also rose notably, particularly in the more price sensitive developing world world.
Net Government Sales 100
Others Russia
M Million ouncess
80
China
60 40 20 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Source: GFMS Ltd.
Government Sales
Government sales estimated at 44.8 44 8 Moz in 2010, 2010 up by a massive 188% on the previous year’s level. R i accounted Russia t d for f th the bulk b lk off governmentt sales l and d apparent disposals from the country nearly doubled in 2010. Other official sales last year were small scale and related to the melting of old coins. Total government silver stocks conservatively estimated at 110 Moz at endend-2010.
Identified Bullion Stocks (end (end--year) Others Government
1200
Comex European Dealers* l *
Millio on ouncees
1000 800 600 400 200 0 2001
2002
2003
2004
Source: GFMS Ltd.; *includes ETF holdings
2005
2006
2007
2008
2009
2010
Market Shifts From “Deficit” to “Surplus”
Milllion ouncces
1000 950
DEMAND
900
(fabrication demand)
850 800 750 700
SUPPLY (mine production + scrap)
650 600 550 1990 Source: GFMS
1995
2000
2005
2010
World Silver Survey 2011 Prices Demand Supply Investment Outlook
for 2011
Silver (Dis)Investment and Real Price 200
25
Million n ouncess
20
Net Investment
120
Real Silver Price
80
15
40 0
10
-40 -80
5
Net Disinvestment
120 -120 -160
0 1985
1990
1995
2000
2005
2010
Source: Silver Institute, GFMS Ltd. Investment refers to the Implied Net (Dis)Investment series only.
rea al silver price in n 2010 d dollars/ooz
160
World o d Investment*
300
Value of Investment
5.0
200
40 4.0
150
3.0
100
2.0
50
1.0
0
0.0 2001
2003
2005
2007
2009
*World Investment is the sum of Implied Net (Dis)Investment and Coins & Medals. Source:: GFMS Source
US$ Billion U
Million ounces s
250
6.0
ETF Silver Holdings 40
700 600
400
35
Other
30
Z端rcher Kantonalbank ETF Securities
25
iShares Silver Trust Silver Price
20 0
300
15
200
10
100
5
0
0
Apr-06 06
Apr-07 0
Source: Respective ETF issuers
Apr-08 08
Apr-09 09
Apr-10 0
US$/ /oz
Million n ounces s
500
Sprott Physical Silver Trust
Investors’* Net Positions in Comex Silver Futures 4000
Average Positions (Moz) 2010 Jan Mar 2011 Jan-Mar
264 257
Comex Settlement Price
80
3600 3200 2800
60
2400 2000
40
1600 1200
20
800 400
0 Jan-05
0 Jan-06
Jan-07
Jan-08
Jan-09
Jan-10
Jan-11
*Non-commercial & non-reportable net positions in futures taken as proxy for investors’ positions. Source: CFTC
cents s/oz
Neet positio ons (conttracts, th housandss)
100
World Silver Survey 2011 Prices Demand Supply Investment Outlook
for 2011
Outlook for 2011: Supply
Mine production will record another increase in 2011, with output t t expected t d tto reach h some 790 Moz. M Key K to t this thi will ill be b an acceleration of growth in Mexico, though widespread increases are forecast forecast. Net producer hedging is likely to remain a strong component of the supply side at around 40 Moz in 2011. 2011 Scrap supply is forecast to increase in 2011, due to higher industrial and jewelry scrap. Government sales are difficult to predict, opportunistic sales could emerge on any price rallies. Overall, supply currently projected to rise a further +/+/- 3% this yyear or roughly g y 30 Moz.
Outlook for 2011: Demand
Growth in industrial demand will slow significantly in 2011, owing to a slower global GDP growth and normalization of stock levels. However, higher base means +/+/- 40 Moz could be added to demand, easily taking it to a new record level. Photographic demand will drop again, although this will have little impact as current level of demand already so low. Jewelry l is likely l k l to rise further f h in 2011, chiefly h fl as benefits b f off ongoing recovery in economy and higher gold prices should outweigh the negative of higher silver prices.
Silverware should fall, a result of ongoing secular shifts plus high prices.
Total fabrication demand in 2011 forecast to increase by 5%5%-10%.
The silver market will remain in substantial surplus this year but this metal will be absorbed by investors at much higher average prices.
Outlook for 2011: Silver Price
Average spot price in Q1 2011 was $31.86 basis the London ‘fix’. This average was up no less than 88% year year--on on--year compared to the average price recorded in the same period of 2010. The gold:silver ratio has fallen sharply to 37:1 just recently, compared with an average of 62:1 in 2010. Silver’s traditional high price volatility and trading range are factors to consider: id Already Al d yearyear-to t -date tod t $13 ttrading di range ($26.68($26.68 ($26 68-$39.63) $39 63) and d average Q1 2011 price volatility 39.6% (gold 12.9%). Investment will remain the main driver of the price price. Silver’s Silver s greater volatility in a smaller and less liquid market than gold is attractive to certain investors, with many now eyeing the allall-timetime-high of $50/oz. 2011 may well see silver reach or even exceed $50/oz, in part basis strong probability of gold peaking comfortably above $1,600/oz.
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