Silver Institute Forecast

From The Silver Stock Investor: February 2024

The Silver Institute recently released its 2024 outlook, prepared by Metals Focus research consultancy, in advance of its World Silver Survey 2024, due out in mid-April.

I think it’s worth reviewing for their thoughts, along with my own, on what’s expected for this year in silver.

Demand

They see silver demand reaching 1.2 billion ounces which, if reached, will be the second-highest level on record, after 2022’s high of 1.27 billion ounces. They expect that will be driven by industrial consumption. They feel that in the near term, precious metals could remain challenged as we wait for U.S. rate cuts and the Chinese economy remains weak. They also believe that the second half of this year will improve significantly as rate cuts begin in the U.S. For the most part I agree with this view.

In their assessment, global demand for silver will rise 1% as industrial, jewelry and silverware demand rise. Industrial fabrication should grow by 4% to a record 690Moz, surpassing last year’s all-time high of 632Moz. As you might have guessed, solar will lead the charge as capacity grows and the move towards higher-efficiency solar cells, which require more silver, pushes higher. This chart shows how Metals Focus expects TopCon, which consumes up to 50% more silver per panel, will dominate installations at nearly 50% for 2024. That suggests that the chart on the right showing silver loadings, to likely rise at per-unit silver requirements start trending higher.

Metals Focus also expects consumer electronics to recover, aided by AI-related applications which will see new products introduced to the market and favour silver.

They also see jewelry demand rising 6% and silverware demand rising 9% thanks mostly to renewed demand from India. These were down 22% and 47% respectively, after 2022 experienced huge growth as India restocked. I actually think both subcategories will rise more than these forecasts.

Metals focus thinks physical investment will decrease by 6% in 2024, after falling 21% following the banner year of 2022’s all-time record of 333Moz. I think we will instead see an increase this year of about 10%, particularly as investors seek silver as a safe haven, and especially in the second half of the year as the Fed is likely to cut rates.

Supply

According to Metals Focus, supply will grow by 3% this year to 1.02 billion ounces, all of which should come from higher mine output offset by lower recycling.

They see mine production up 4%, dependent on Polymetal’s Prognoz silver mine in Russia, Gold Fields’ Salares Norte gold mine in Chile, and Coeur Mining’s Rochester expansion in the U.S. I’m not so confident these will run smoothly. There’s also Aya Gold & Silver’s Zgounder Mine expansion in Morocco, which will help boost silver output. Metals Focus see base metals silver by-product output to fall as base metals miners struggle, and weak zinc prices potentially lead to mine suspensions. They also see recycling set to fall about 3% on lower jewelry and silverware scrap supply. I think overall supply may only rise by 1-2% this year, but I would not be surprised if zero growth ends up as the final outcome.

Overall, Metals Focus foresees a fourth consecutive year of structural market deficit, which they expect will ease by 9% to 176Moz, from 2023’s 194Moz. (Keep in mind that back in November, they thought 2023’s deficit would come in at 140Moz, rather than the recently revised 194Moz, or 39% higher!). I think it’s more realistic to err on the higher side, and that 2024 will produce a deficit near 185Moz.

Silver Investment

The overall stance Metals Focus has on investment demand for silver this year is that the first half will face headwinds until Fed rate cuts start. They believe those cuts, expected around mid-year, will help boost investment demand and help push silver higher as real yields fall. I agree with that view, but think we could see investment demand kick in ahead of cuts as the market looks forward and starts to price them in.

In the big picture, I mostly agree with Metals Focus’s assessment of the silver market in 2024. Where I differ is in my expectations that mine supply will grow much more modestly by 1-2% rather than their forecast of 4%. I also think that investment demand will rise by about 10% rather than fall by their expected 6%.

The Silver Institute 2024 World Silver Survey is expected out in mid-April. Of course, I will continue to monitor significant developments meanwhile, and will certainly do an in-depth review of that Survey when it’s published.

Meanwhile, I expect the physical silver market to remain challenged, as especially industrial demand continues to grow robustly, while any surplus inventories continue to drain. The day of reckoning is approaching, and silver prices will have to rise significantly to meet the reality of the market.