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Ardent Listener
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 Posted - 06/23/2010 : 18:23:37
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New uses for silver to grow demand in next 10 years
June 23, 2010
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New uses for silver could quadruple demand from new sectors in the next ten years to at least 230 million ounces - or about 25 percent of world silver demand from about 8 percent today, the VM Group said on Tuesday.
Releasing the Silver Book, which is produced as part of a joint venture with Fortis Bank Nederland, the VM Group said this could set the silver market up for a structural change.
For years the silver market has been characterised by falling demand in the photographic industry and tepid jewellery off take, while supply has seen rapid growth.
This has resulted in the market surplus rising from 1 800 tons in 2000 to an estimated 7 200 tons in 2010.
"Under normal circumstances such growth in supply relative to demand would see prices under extreme downward pressure, but investment demand has soared since the launch of the first silver-backed exchange traded funds (ETF) in 2006, and now accounts for more than 400 million ounces (12,440t) of silver held in bullion bank vaults," said the precious metals analysts.
It said price support has increasingly come to depend on investment demand more than industrial demand.
However, new and emerging end uses for silver could well pick up the baton from photography as far as silver industrial demand is concerned.
"We estimate these new end uses, comprising solar, medical, textile, radio frequency identification, water purification, and food hygiene, among others, will more than offset the decline in photographic consumption and lead to the silver market surplus eroding significantly by 2020," said the VM Group.
It said the degree to which the current surplus falls depends on a number of factors, including the growth in these new areas of demand, the response by the investment community and growth in mine supply.
According to the report, silver mine supply is relatively price inelastic and largely detached from the fundamental supply-demand aspects of the silver market.
This mine supply is set to grow steadily throughout the next decade, largely due to the broader growth in gold and base metals' mine output with silver mined as a primary as well as a co-product and by-product.
The VM Group said about 30 percent of total annual silver output is from primary production, with 15 percent to 20 percent as a co-product and the balance a byproduct.
But it said primary supply is set to fall to a low of 23 percent by 2020 as co-product and bi-product silver mine supply becomes more dominant.
The question is whether this extra mine supply would be sufficient to meet projected demand growth considering new end uses.
"We estimate that these new end uses will grow at a combined compound annual growth (CAGR) rate of more than 12 percent in the next 10 years," said the VM Group.
It said ETF demand might grow as these new end uses come to the fore and the shrinking of the global silver surplus becomes more evident.
"The silver price is therefore almost certain to rise in our view - but to what extent must be uncertain, simply because a substantial price rise would inevitably threaten some of the new end uses that are developing," the precious metals analysts said.
At the end of the day mine supply growth, investment demand and future industrial off take growth will all be critical in determining the market balance.
"Supply growth will be largely independent from the fundamentals affecting the silver market and, despite projected growth in byproduct and co-product output, we doubt that it will meet the growth in demand," the VM Group said.
But it added that silver's mid and long-term prospects were therefore more convincingly bullish than they had been for some time.
"As the current surplus begins to erode over the next few years we expect a reaction among the investment community, with ETF demand likely to hit new records, possibly bringing about a deficit."
However, under these circumstances, and rising prices, miners will be incentivised to bring on greater supply.
The resultant market balance by 2020, we forecast, will see a surplus of about half of today's, more than 7 000 tons," the analysts said. - I-Net BridgeYou must be logged in to see this link.
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New uses for silver to grow demand in next 10 yea
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