Michael DiRienzo
Executive Director
The Silver Institute
Expert Contributor

Silver Lining: Economic Recovery To Propel Prices Higher

Fri, 06/11/2021 - 09:05

Q: What are your expectations for silver in 2021?

A: The Silver Institute and our consultants at Metals Focus see the economic recovery that is underway continuing over the rest of the year, and that in turn will be good news for silver.

As for silver’s supply and demand fundamentals, our full-year projections for 2021 show gains for every single line in our supply-demand table. Mine production, for example, is expected to rise by 8 percent, as output recovers after last year’s COVID-19-related disruptions. Recycling is also expected to increase, helped by the stronger silver price. Overall, supply is forecast to rise by 8 percent to 1,056.3Moz (32,854t) in 2021.

In our view, all of this is conducive to further price gains. We expect silver to rise to a peak of $32 later in the year and that it will average $27.30 overall in 2021, achieving a 33% y/y increase.

Q: What factors make you believe that silver is the metal of the year?

A: Industrial demand globally is expected to see an 8 percent rise this year to a record high of 524.0Moz (16,299t). Much of the increase will come from a re-opening of economies and investment in green energy solutions, as illustrated by our expectations respectively of healthy gains for end-use in ethylene oxide catalysts and photovoltaics. Silver use in the automotive industry should also be robust, aided by surging sales of electric vehicles. Demand overall is also benefiting from still limited thrifting and substitution.

Jewelry fabrication is forecast to increase by a substantial 24% in 2021 to 184.4Moz (5,734t). This will primarily be driven by retailers’ follow-through re-stocking and, more importantly, easing COVID restrictions and an economic recovery. That said, this will still fall short of 2019 levels due to high prices and lingering COVID damage. In the US, we are confident of buoyant gains for consumption and even more so for fabrication this year as the economy recovers. Global silverware demand is also forecast to rebound this year (by 32 percent).

Net physical investment is likely to see further strong gains in 2021, with demand forecast to rise by 26 percent to 252.8Moz (7,862t), its highest level since 2015. Western markets will build on gains from 2020, while the sharp bounce-back in India will be driven by the base effect and investors there taking advantage of the recent price correction.

Q: How will Mexico be affected by the increase in prices and demand for silver?

A: We believe Mexico will benefit from both as silver is both an industrial and a financial metal. This year, silver producers in Mexico should see some recovery over 2020 as we expect global silver mine production to rebound strongly in 2021, rising by 8.2 percent y/y to 848.5Moz (26,392t). Mined silver output had largely returned to full capacity by the end of 2020 as miners had successfully implemented new procedures to protect workers and ramped up production rates following temporary mine closures due to nationwide lockdowns earlier in the year. As a result, combined with the global vaccine roll-out, mines are expected to operate at full capacity throughout the year, which will be the primary driver behind production growth.

The biggest increases will be from those countries where mining was most heavily impacted by the pandemic last year, such as Mexico (+23.6Moz, 735t). Mexico is expected to have particularly robust growth as new projects, such as Cerro Los Gatos, Juanicipio and Capela, ramp up production rates. These increases will be lessened by grade-related declines at individual mines elsewhere, but the relatively high silver price should ensure there are no additional drops in output due to market-induced mine closures.

On the demand side, as mentioned previously, we project that all areas of demand are forecast to rise in 2021, which will assist the projected rise in the silver price. Silver demand should enjoy solid growth from 2022 onward. Mexican industrial offtake, for instance, will initially benefit from the post-COVID re-opening of economies but perhaps of more interest is its structural potential. Silver’s end use in the automotive arena should grow fast, for example, as vehicle output bounces back and as we see a surge for electric vehicles, which have a much higher silver loading than conventional vehicles. The proliferation of 5G devices and networks will also act as a useful boost, as could induction chargers and cold sintering powders.

We think 2021 and beyond will be very good for Mexico.

Photo by:   Michael DiRienzo