“The World Silver Survey 2016,” an annual report published by The Silver Institute, said Asia’s silver mine output went up last year by 1% to 165.1 million ounces, following a 3% drop in 2014. A major part of the decrease originated from lead and zinc production sources with a lesser drop from primary silver mines. The bulk of the loss could be traced to mines in China and Kazakhstan.
For India, silver production showed a “notable rise” last year, of over two-fifths, or by 3.6 million ounces, to reach a record production total for the country of 12.0 million ounces.
Indian Silver Production
Higher ore volumes and grades from the country’s Sindesar Khurd mine in the second half of the year were behind much of the gain, amid a period of otherwise lower output as the company’s flagship Rampura Agucha moved from open pit to underground mining.
Total physical demand in 2015 saw a 3% increase in 2015, driven by higher retail investment, jewelry and silverware fabrication and solar and ethylene oxide catalyst demand.
Also, last year, silver retail investment and jewelry fabrication hit a record high. Jewelry fabrication, for example, increased for the third consecutive year and hit a fresh record high of 226.5 millions ounces. Again, strong growth in Indian and North American fabrication offset a near one-third drop in Chinese fabrication.
The silver market, according to the report, realized an annual physical deficit for the third consecutive year in 2015. The market’s deficit of 129.8 million ounces was more than 60% larger than the previous year’s deficit of 78.6 million ounces and the third largest on record, the survey recorded. Silver prices averaged $15.68/oz, down 17.8% from 2014, the fourth consecutive annual drop. Prices were pushed lower by investor expectations for an interest rate hike in the United States and a weakening Chinese economy.
Silver bullion trade in 2015 continued to be dominated by flows to India, where total imports reached an all-time high of 256.0 million ounces, rising by 16% from the 2014 level.
In India, scrap supply declined for a third consecutive year falling by 14% from 2014 to 2.5 million ounces, the lowest in more than 15 years. This decline was largely attributed to three consecutive years of falls in annual average prices, which last year had dropped by 14%.
Physical Bar Demand
Compared to the previous year, global physical bar investment rose to a record 158.2 million ounces in 2015, a 24% surge. The declining silver price drove bargain buying higher, particularly in India and the U.S., where bar consumption rose 31% and 25%, respectively, said the survey. What also gave a boost to silver bar demand was a strong demand for official coins and the corresponding shortfalls of coin supply, as investors sought an alternative to satiate investment demand.
Last year, physical bar investments in India increased by 31% to 82.5 million ounces, the highest since 2008. In India, a large part of this form of investment comes from short term hoarding to benefit from lower prices or to profit from a differential in the spot and futures market. This type of build-up of positions eventually returns to the market as disinvestment when the price rallies.
Such disinvestment during price rallies resulted in local premiums (the price at which the metal is sold by a domestic trader after buying from importing agency) falling to a low of 2 cents and at times being forced to sell at discount, as against a lower threshold of 3 cents observed in 2014.
Turnover on the Multi-Commodity Exchange of India (MCX) more than halved in 2014 as a result of the commodities transaction tax, which was introduced in July 2013. The marginal 1% year-on-year decrease in 2015, to a nominal 7,705 million ounces, might indicate that investors have gradually adjusted to the change.
The survey said in the first quarter of 2016, although safe haven demand was the primary driver, the relatively stronger market fundamentals acted as a spring board for silver prices, given the continued higher demand for coins and concern around mine supply reduction.
The report predicted that silver mine production would continue to suffer losses in 2016 as a consequence of supply cuts in lead and zinc production, in combination with lower forecast output from both the primary silver and gold industries.