Domestic
Scenario
In India the silver demand and imports fell 80 per cent in
2012. The fall in demand has a direct reflection on import, though India
produces sizable silver, unlike gold where the country is totally
import-dependent. In 2012, India's silver demand for investment was just 300 MT,
against 1,549 MT in 2011. India's total demand for silver was 3,234 MT in 2012
against 4,437 MT in 2011. The import was 1,900 MT in 2012, against 4,087 MT in 2011.
Silver prices peaked in April 2011, at a global $48.4 an ounce. India has been
producing silver as a byproduct of refining zinc and copper. In recent years,
Hindustan Zinc Ltd (HZL) has emerged as the largest silver refiner. In 2012-13,
it produced 408 MT and taking into account production by other metal refiners,
total production is estimated at a little over 500 MT. In 2011, India was 17th
among global silver producers, with 7.5 million ounces. It was 13th
in 2012, with production of 12.7 million ounces.
International
Scenario
Global silver mine production grew last year, by 4 per cent,
rising to a new record of 787.0 Moz (24,478 MT). By-product output from the
lead/zinc sector provided much of the growth, up by 9 per cent, with strong
growth in China, Mexico and India. Primary silver mine supply grew only
slightly in 2012, by 1 per cent. Primary silver total cash costs rose by 9 per
cent, to $8.88/oz, as credits from base metal by-product revenues fell, coupled
with lower grades and higher input cost inflation. Total fabrication in 2012
dropped by 6.6 per cent to 846.8 Moz (26,339 MT), reflecting losses in all areas.
Industrial fabrication fell the second year in a row, easing by 4.5 per cent to
465.9 Moz (14,490 MT), due mainly to patchy GDP growth and thrifting. Implied
net investment surged by 21 per cent to a fresh all-time high of 160.0 Moz
(4,976 MT).
Price
Trend Analysis
The
annual average silver price decreased by 11 per cent in 2012, to $31.15, the
first retracement since 2009. This is in contrast to the trend in the gold
price, which increased by 6 per cent to reach a fresh (nominal) high. Silver traded in a narrower range in 2012 than in 2011, with a
range:average ratio of 34 per cent versus 64 per cent, while silver’s
volatility in 2012 was 29 per cent, compared to 61 per cent in 2011. Meanwhile,
the annual average gold:silver ratio increased from 45 in 2011 to 54 in 2012,
indicating a degree of underperformance from silver. Silver opened 2012 with a
fix of $28.78 and rallied smartly, wiping out December losses before the end of
January and moving on rapidly to post what proved to be the year’s high on February
29th at $37.23. The reversal at the start of March was triggered by the
reaction to Federal Reserve Chairman Bernanke’s testimony to Congress, where
his lack of reference to QE3 was taken by some to mean that the likelihood of
more easing was receding. The weakness from current levels is limited and
prices are expected to move northward after minimal correction.
Production & Price Forecast
Supply
of silver from above-ground stocks fell by 7.5 per cent to 261.3 Moz in 2012,
driven by a continued decline in government stock sales, a drop in scrap
supply, and the absence of net-producer hedging. Producer de-hedging added 41.5
Moz to the demand equation in 2012. Government stock sales fell a staggering 39
per cent to a 15-year low of 7.4 Moz. A continued decline in disposals from
Russia and an absence of government stock sales from China and India were the
primary factors. A drop in western supplies of recycled jewellery and
silverware, combined with further falls from photographic sources, drove silver
scrap supply down further by 1.6 per cent to 253.9 Moz. Silver in international
market is expected to move up beyond 22 USD / Oz by end 2014 with firm support
at 18.24 USD / Oz.
