In their annual yearbook, New York precious metals consulting firm CPM Group forecasts that the net surplus in silver is expected to rise to 182.1 million ounces this year, which will approach the record 222.2 million ounces of silver purchased in 1980.
In the Silver Yearbook 2009, CPM estimated that total silver supply increased 2.3% to 803.2 million ounces last year, and forecast that total silver supply will increase 2.5% to 823.1 million ounces this year, primarily due to increased mine production and secondary recovery from silver scrap.
Noting that mine production accounts for 70% of total silver supply, CPM projects that mine production may increase 3.2% this year to 566.3 million ounces. CPM advises that the total gross annual mining capacity of expansions and new mines due over the next couple of years will add at least 118.5 million ounces of annual silver production. More projects should be expected to be advanced in the future, adding to this total.
Silver from scrap rose 4.7% in 2008 to 254.5 million ounces, CPM said, anticipating a 0.9% increase to 256.8 million ounces from scrap in 2009.
However, fabrication demand for silver declined to 701.2 million ounces last year, down 3.1% from 2007. A large part of the decline in fabrication demand last year was attributed to the deepening global economic conditions coupled with relatively high silver prices, CPM noted.
Demand may decline even more sharply this year as CPM forecast an 8.6% drop to around 641 million ounces this year. The precious metals consultants also advise that jewelry demand could fall from 261 million ounces last year to 249.9 million ounces of silver this year. Industrial demand could drop to 383.7 million in 2009 from 430.3 million ounces in 2008.
CPM's analysis also found that the key driver for silver prices is investor attitudes toward silver and how those attitudes are being reflected in investor buying and selling of this metal. Over the past couple of years investors have significantly increased their silver holdings and this has been reflected in relatively high silver prices. It is expected that investors will continue to be interested in buying silver through 2009.
In their report, CPM notes that shifts in the nature of investment management, changes in the nature of investment management, changes in the methods for investing in precious metals, and other trends all suggest that investors may continue to buy large volumes of precious metals for several years to come, seeking to maintain their safe haven investments even when economic recovery emerges.
To obtain a copy of the report, go to www.cpmgroup.com