Silver may decline further for the remaining part of the year as falling industrial and fabrication demand may make the metal surplus, global consultancy firm Gold Field Mineral Services (GFMS) has forecast in its latest report on Thursday.
For the first 10 months of this year, the price of silver, based on the London fixing, averaged $15.93, up 21 per cent year-on-year but down 38 per cent intra-year. That means the price remained highly volatile and the scenario is likely to continue in 2009 as well.
Fabrication demand may be broadly unchanged on last year’s level, with expectations currently for a rise of around 1 per cent year-on-year. A substantial drop is expected in 2009.
Industrial demand has enjoyed some growth so far this year but has slowed in recent months. GFMS is currently forecasting a full year gain of just over 1 per cent. However, a decline in industrial demand is certain next year under the impact of much weaker growth in GDP and global industrial production and some downturn in the electronics industry.
Jewellery and silverware fabrication is estimated to have dropped in 2008. Many countries have been affected by the silver price rise and weakening economy this year. However, some substitution gains have been seen in jewellery at gold’s expense. Indian demand has also surged in recent months on lower local silver prices.
Photographic use of silver is expected to drop by close to 11 per cent in 2008 as demand continues to be affected by the switch to digital technology. Silver use in consumer film has been the hardest hit. Coin minting has expanded strongly in 2008, with a full year gain forecast of 69 per cent to a new record level.
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Therefore, the supply - demand of silver fundamentals is expected to turn negative in 2009, largely due to a drop in fabrication demand. Taken in isolation, this will be negative for the price, the consultancy forecast.
A growing “surplus” between supply from mine production and scrap and fabrication demand means that more metal will have to be absorbed by investors. GFMS’ view is that this will take place and that this demand will also tend to drive prices up from prevailing $9-$10 levels.
There are several reasons for expecting such an outcome: inventories have now been cleared out; the dollar rally will be partly unwound; “de-leveraging” will come to an end, and economic and financial problems will get worse.
Silver - likely to be seen as “cheap” on a ratio basis - will be helped higher by gold. In light of this, GFMS’ current base case price forecast for 2009 is for silver to average close to the $13 mark.
In turn, total supply is forecast to decline by around 4 per cent this year. Only modest growth in supply is now expected in 2009, contrary to previous expectations of a substantial mine production-led jump.
Mine production is forecast to rise only moderately, by approximately 5 million ounce (oz) to 171 tonnes or just under 1 per cent this year. Scrap supply is expected to fall by 6 per cent this year, due to a continued reduction in the amount of silver recovered from photographic waste, the main source of recycled metal.