Silver demand in fabrication to grow 3.9% in 2013, research says

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The silver demand in fabrication is expected to grow 3.9% year-on-year in 2013, boosted by increasing demand from industrial applications, jewelry, silverware and coins and medals consumption, research firm Thomson Reuters GFMS said late on Tuesday.

In its ‘Silver Interim Market Review’, which was published by the Washington-based Silver Institute, the firm said fabrication demand was expected to rise to 877-million ounces, pointing to jewellery demand having been particularly strong amongst emerging countries, as demand surged in India owing to consumers switching away from gold, as draconian government regulations put in place this year curbed gold imports.

The industrial sector, which currently accounted for 45% of global silver demand, was also expected to grow by 1% this year to 475.1-million ounces, after two years of contraction, thanks to a pickup in industrial activity amid an improved global economic outlook.

Demand for jewellery and silverware was expected to show robust growth of 6% in 2013, as strong growth in emerging markets and the US offset a contraction in Europe

GFMS said that much of silver’s 31% price decline this year was driven by factors similarly influencing the gold market, triggered by emerging expectations that the US Federal Reserve would taper its $85-billion monthly bond and mortgage backed securities purchases in light of strengthening economic activity.

This, alongside an expectation of more attractive returns in other asset classes prompted investors to engage in sector rotation trades, away from safe-haven commodities towards equities and bonds.

Silver prices in the first ten months of the year had averaged $24.51/oz, a 20.7% decline year-on-year, and GFMS now forecast a full-year average price of $24.24/oz.

“One of the defining characteristics of the silver market is its display of duality, at times closely shadowing developments in the gold market and at others taking cues more from the industrial world. This trend is forecast to continue into 2014, as an improving physical demand environment is faced with the potential for an unwinding of US government quantitative easing and a stronger US dollar,” the London-based researcher said.

GFMS noted that while outflows from gold exchange-traded funds (ETFs) were firmly in place throughout the year, silver ETF holdings continued to grow, reaching a record-high of 655-million ounces as of October 31.

One explanation cited were broad expectations of economic recovery, which would offer silver prices a cushion of support owing to its properties as an industrial metal.

Further, the gold:silver ratio, a keenly watched metric, had been steadily rising since 2011, indicating a potential correction on the horizon.

Meanwhile, physical investment demand, including coins and medals, had surged this year, and was expected to grow by 19% year-on-year to 110.5-million ounces this year.

Mine production was poised to grow 4% this year to 815-million ounces, with growth in output mainly coming from the US, Mexico and the Dominican Republic. The growth in mine supply was forecast to be offset by an 8% decrease in scrap supply as low prices, compounded by the lack of ‘close to market’ stocks on the back of weak industrial activity in previous years, reduced its availability.

GFMS expected the fundamental balance, construed as the difference between supply and demand (fabrication excluding coins) was set to extend its residual surplus for the eighth successive year.

Meanwhile, Sentry Investments portfolio manager Jon Case told investors in Toronto on Tuesday that global silver output was expected to rise through to 2017, mainly on the back of increasing by-product output, but also owing to primary silver production. Global silver output was expected to total just under a billion ounces in 2017.

He noted that in spite of the current difficult markets, investors should not expect silver mine closures, owing to about 55% of primary silver producers’ all-in sustaining costs being well under the average expected 2014 silver spot price.

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