Silver Heads for Sixth Deficit Year; Liquidity Risk Persists

The global silver market is entering a sixth consecutive year of structural deficit in 2026, with the supply gap expected to widen to 46.3Moz, directly relevant to Mexico as the world's largest silver-producing nation. Declining output from key Mexican mining operations contributed to a 3% drop in North American mine production in 2025, its lowest level in a decade, pressuring revenues for producers operating in the country. Elevated price volatility, weakening photovoltaic and jewelry demand, and Iran war-related global growth risks present compounding challenges for Mexico's mining sector and its export earnings.

The silver market is heading for a sixth consecutive year of structural deficit, with 762Mozt drawn from stocks since 2021, raising the risk of a renewed liquidity squeeze despite weaker demand expectations, the Silver Institute and consultancy Metals Focus said.

The findings were published in the World Silver Survey 2026, an 88-page report researched and produced by Metals Focus, the London-based independent precious metals consultancy, for the Silver Institute. The global silver market deficit is expected to widen to 46.3Moz in 2026, up from 40.3Moz in 2025, even as total demand falls 2% to 1.11 billion ounces (Boz).

A Record Rally, Then a Sharp Reversal

Silver is down 35% since frenzied retail buying drove prices to a record high of US$121.6/oz on Jan. 29. That peak followed a 147% surge across 2025, which itself built on a 42% rise in the annual average price for the year.

The base for the rally was established in 2025 by months of metal inflows into US inventories and silver-backed exchange-traded products (ETPs), alongside a spike in physical demand that triggered a liquidity squeeze in the benchmark London market in October. Falling inventories, a dramatic shift of metal into CME vaults, rising ETP holdings, and a surge in bar and coin demand created unprecedented conditions for lease rates and prices. By early April 2026, silver was trading in the mid-US$70s/oz.

Since then, liquidity has improved as metal flowed back from the United States, ETPs saw outflows and Indian demand eased.

"Lease rates in London have largely normalized, but risks of another liquidity squeeze this year remain," said Philip Newman, Managing Director, Metals Focus.

Metals Focus estimates that 28% of 884Moz of silver held in London vaults at end-March were not tied to ETPs and were potentially available to support liquidity, the highest share since January 2025 and up from a historic low of 17% in September that helped precipitate the October squeeze.

Newman said conditions for a silver squeeze will be created again, requiring further outflows from the United States, if the price becomes more volatile and Indian demand picks up, especially if coupled with ETP inflows storing metal in London.

2025 Demand: Industrial Weakness, Coin Strength

Total silver demand fell 2% in 2025 to 1.13 Boz, as a 14% jump in coin and bar demand nearly offset losses across other key segments.

After four years of strong growth, silver industrial demand declined 3% to 657.4Moz. Electrical and electronics demand fell 2%, with structural growth in artificial intelligence infrastructure, automotive end-use, and power grid investment offset by weakness in photovoltaic (PV) demand. Intense competition and rising silver raw material costs prompted PV manufacturers to accelerate thrifting and substitution. Demand for brazing alloys rose 1%, supported by the automotive and aerospace sectors, while other industrial demand fell 7%, largely due to a slowdown in the ethylene oxide market.

Global silver jewelry fabrication fell 8%. Coin and bar demand rose 14% in 2025. India led with a 33% increase, while Europe posted its first rise in three years. The Middle East and China recorded multi-fold gains. The US posted a third consecutive year of losses, as Trump's election dampened safe-haven buying and profit-taking during the price rally weighed on demand.

2026 Outlook: Deficit Widens, Industrial Demand Under Pressure

Total demand in 2026 is forecast to fall modestly by 2% to 1.11Boz. Industrial silver fabrication is projected to decline 3% to a four-year low, with the Iran war's damage to global growth threatening further downside, particularly in PV offtake. Double-digit losses are expected in jewelry and silverware as the impact of elevated prices continues.

Coin and bar demand is forecast to rise 18%, supported by a recovery in US buying. Global silver mine production is expected to remain flat in 2026, as grade-related and operational pressures across key producing regions offset modest growth elsewhere. Total global silver supply is forecast to decline 2%, reflecting producer hedging normalizing after jumping in the 2H25.

With mine production stable, the structural market deficit is expected to widen to 46.3Moz.

The World Silver Survey 2026 notes that while the Iran war has complicated the short-term outlook, the broader macroeconomic and geopolitical backdrop remains supportive for silver prices, assuming the conflict remains relatively contained and that recent pressure from rising US rate expectations proves temporary. Elevated policy uncertainty, sovereign debt risks, and concerns over the future role of the US dollar remain relevant factors for the metal's performance.