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What’s in Store for Silver in 2018: Trends and Expectations
Gold may be the unrivaled king among precious metals, but silver is slated to have a lively year of its own according to the latest report from the Silver Institute. We’ve written before about silver’s unique properties that make it an integral player in global economic production, and in turn an attractive investment vehicle for traders, and the forecast market trends show it will play a sizeable role in 2018.
Demand for Silver
Although the diversity of silver’s applications is large, in many of these cases its use is limited to small quantities. Nevertheless, the volume of applications continues to rise, and this is expected to have a positive impact on the industrial consumption of silver this year.
Industrial applications make up the largest use of silver globally, and represented 60% of global demand for the precious metal in 2017. This is expected to grow even more this year. The trend towards increased electrification in industries such as automotive (which in itself is growing) is expected to in part drive this demand, as silver’s conductivity makes it an unrivaled component in electrical applications.
Given its use in photovoltaic applications, the increases in solar panel production over the recent years have correlated positively with the demand for silver. This demand had reached an estimated 92 Moz (million ounces) in 2017, and the Silver Institute expects it to grow further this year and set another record. Large-scale solar energy projects and strong demand from households, particularly in China, is to be the main driver.
Following a 1% rise in 2017, the demand for silver in jewelry is expected to continue this steady increase in 2018 and expand by another 4% according to the Silver Institute. Approximately one-fifth of global silver demand is driven by the jewelry sector, making any increased demand have a noticeable mark on its value, not least due to jewelry being silver’s most publicly recognizable application.
On the other hand, the demand for silver in bullion form has decreased drastically to just 73 Moz in 2017. The weakness was largely felt in the US, where a booming stock market and the staggering rise in cryptocurrencies had taken some of the investor attention and capital away from physical precious metals. This is expected to somewhat reverse this year as shortcomings in the equities market and a slowdown in cryptocurrencies drive some investment back to precious metals.
Silver exchange-traded-products (ETP) holdings are also expected to rise by approximately 3% in 2018. ETP holdings achieved a record high of 670 Moz by the end of 2017. Although growth has been relatively stable since 2012, falls in silver ETPs are rare, and have exhibited a small decline in total annual holdings only twice since their introduction in 2002.
India in particular is a big driver for silver demand among nations, and the country’s silver imports almost doubled to 183 Moz in 2017 compared to the previous year. This strong rise is in part due to steady jewelry demand and a favourable tax rate on precious metals introduced with the new Goods-and-Services-Tax (GST). Silver demand from retailers rose significantly last year in India, and the Institute expects the demand from jewelry makers to remain strong in 2018.
Supply of Silver
On the supply end, output from global mines fell 1% in 2016, which marked the first annual decline after 14 years of consecutive growth. The trend towards lower supply continued in 2017, with output expected to contract by another 2%, to reach 870 Moz.
The Silver Institute expects output to be constrained again this year, citing production disruptions in South America and a decline in spending from the primary producers over the last five years. Nonetheless, a strong recovery in base metal prices is expected to provide some support for output in 2018, especially on the part of by-product producers that would take advantage of the trend in prices.
Scrap silver showed some improvement in 2017 due to increased recycling of manufacturing waste. Although scrap supply has been declining strongly since 2011, it is expected to stabilise around 150 Moz – roughly 15% of total supply of silver.
Balance of Silver Supply and Demand
The balance in the silver market (total supply – total demand) is again expected to be in slight deficit in 2018, as both supply and demand reach above 1 billion ounces. The shortfall can be mitigated by above ground stocks, which would be seen as a positive development as there had already been a 9% rise in above ground stocks last year amid weak demand for physical reserves in the US and Asia.
The Price of Silver
All things considered, the Silver Institute expects the silver price to have volatility this year, after falling by just half per cent in 2017 to an average of $17.05/oz, although short covering had already managed to drive the price above that average in January. The Institute believes there to be ample room for improvement and a rise towards its long-term average. Positive trends in physical gold investments should also benefit silver as professional speculators leverage their exposure and retail investors opt for silver as a cheaper alternative.
Source: The Silver Institute