Silver

More than any other precious metal, silver has two faces. On the one hand, it is a relatively commonly used industrial metal. On the other hand, among investors it has passionate supporters who ascribe to it a tremendous future. It is not always easy to find common ground with both perspectives.

Silver is by far the most frequently occurring element among the precious metals. Almost 21,000 tons are newly mined every year. Only to a small extent is so-called primary production involved, meaning that silver is the primary product of a given mine. It is much more frequently the case that silver is a by-product of mining other metals, often of copper, lead, or gold production. The most important producer countries are Peru, Mexico, China, Chile and Australia, which collectively represent more than 60% of annual global production. BHP Billiton is the largest single silver producer. The Polish copper producer KGHM is responsible for the largest quantity from a single mine.

Analysts estimate that up to the present day, more than 1.3 million tons of silver have been mined around the world. In contrast to gold and the platinum metals, most of it was mined prior to the second half of the 20th century.

The annual supply from new production is increased by an additional 5,500 tons, which are derived from recycling sources, as well as about 1,300 tons sold by official entities, such as central banks. Altogether, the market has almost 30,000 tons of silver per year at its disposal. This number has remained more or less constant during the last ten years, though it is rising slightly.

The future supply of silver is unlikely to be determined by the price of silver itself. Instead, it should be much more dependent on how the production of the non-ferrous metals copper and lead develops. The significant increase in the prices of these metals over the past several years has led to the recent opening of a series of new mines, which could soon introduce more silver to the market. At the same time, it should not be assumed that sharply declining sales by central banks and other government entities of late are likely to experience another substantial upturn. Therefore, the net supply of silver is expected to increase only slightly in the next several years.

In recent years, industrial demand could not keep pace with the growth in supply. However, this factor was more than offset by a revived interest on the part of investors. These include both long-term-oriented investors and short-term speculators. Between 2005 and 2008, both groups have accumulated thousands of tons of the metal, primarily in the form of exchange traded funds (ETFs) that are recent additions to the market, but also in the form of physical bars and coins.

Purchases by investors may have sufficed in recent years to produce a sharp increase in prices. However, just as in the past, various industrial applications account for the real foundation of demand. These applications are widely diversified, more than for any other precious metal. For example, substantial quantities are used in the electronics industry. In addition, silver is used for coatings in the photovoltaic industry, as well as by manufacturers of plasma displays and mirrors. The metal also plays an important role as a component of batteries. Other relatively new applications include “rediscovered” uses in the sterilization of water and in RFID chips. Taken together, these areas absorb more than 50% of the available metal.

Even today, the photographic industry remains an important user of silver. Here the metal is used to coat film and photographic paper. Film in particular has been under substantial pressure since the beginning of digital photography’s victory march. This pressure has further increased now that even X-ray photography is primarily reliant on digital technology. At present, the photo industry is still responsible for 15% of the global demand for silver. As recently as 1998, however, it accounted for more than 25%, and its share should continue to decline dramatically in the next few years.

Since antiquity, silver has been used not only to manufacture jewelry and art works, but also basic commodities. In the 21st century, these applications continue to constitute a substantial portion of silver demand. At almost 7,000 tons per year, such sales are now almost double the demand of the photographic industry. Nevertheless, even here use is trending lower, albeit only slightly. Still, a decline in the popularity of silver for jewelry is hardly responsible. The segment is responsible for almost three-quarters of sales in this area and remains stable at a high level. Instead, during the past ten years, sales of silver goods for household use have declined to 1,800 tons, about half the earlier level.