Is silver demand greater than silver supply? In the realm of precious metals, silver has faced a persistent issue over the past three years: the demand for silver surpassing its supply. This imbalance poses a critical concern as it involves the utilisation of finite above-ground silver reserves to meet the excessive demand.
Silver demand exceeds supply
The deficit between silver demand and supply has been acknowledged as a ‘structural deficit’ by the Silver Institute. This term refers to a prolonged shortage driven by underlying factors like technological advancements and an escalating need for silver in various industries. However, this demand surge hasn’t been met adequately by increased supply from mining or recycling.
The Silver Institute, much like the World Gold Council for gold, collects data on silver supply and demand through Metals Focus, a London-based precious metals consultancy.
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So, is silver demand greater than silver supply? The breakdown looks like this:
Total Annual Silver Supply = Silver from Mine Production + Silver Recycling
Total Annual Silver Demand = Investment, Jewellery, Silverware, and Industrial Demand
Whenever demand exceeds supply, it results in a market imbalance (or deficit), which has been consistent in recent years. For instance, in 2023, the deficit amounted to 140 million ounces of silver, following deficits of 81 million ounces in 2021 and 253 million ounces in 2022.
Decrease in global silver output
This continual imbalance is further aggravated by a decrease in global silver output, notably from countries like Mexico, Peru, and Argentina, as reported by Metals Focus.
Forecasts suggest this silver deficit trend will persist, mainly due to the surging industrial demand for silver. Interestingly, this industrial demand isn’t fully accounted for in the statistics provided by the Silver Institute and Metals Focus.
The industrial uses of silver
The industrial uses of silver encompass a vast array of sectors, from electronics and automotive technology to aerospace, robotics, and even military applications. This includes the utilisation of silver in electric vehicles, solar panels, medical equipment, and advanced technological innovations.
Despite the acknowledged deficits, the concern revolves around the depletion of above-ground silver reserves. The cumulative deficits over recent years have already made a significant dent in these reserves, leading to questions about their sustainability in bridging the ongoing demand-supply gap.
Reported inventories, such as those in the LBMA vaults in London, the COMEX vaults in the US, and exchanges in China, have shown a consistent decline. This dwindling supply raises concerns about whether these reserves can continue to cater to the rising demand for silver across diverse industries.
Chart source: www.incrementum.li
The evolving scenario prompts discussions about potential government-held silver reserves and unidentified sources of silver supply. For example, London’s vaulted stocks, while seemingly significant, largely include silver owned by ETFs and other investors, limiting the actual availability to meet market demands.
Similarly, inventories in other major exchanges like the COMEX, Shanghai Gold Exchange (SGE), and Shanghai Futures Exchange (SHFE) have witnessed notable drops, underscoring a broader challenge in maintaining adequate silver reserves.
Is silver demand greater than silver supply you may ask yourself? The trajectory seems clear: as long as demand outstrips supply, the structural deficits will persist, potentially impacting silver prices in the future. However, the dominance of bullion banks in determining silver prices through paper trading mechanisms raises questions about the extent to which these deficits will truly influence market dynamics.
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The growing industrial need for silver
In essence, the growing industrial need for silver, coupled with depleting above-ground reserves, signifies a complex challenge that could significantly affect the silver market in the coming years.
Either way, this could trigger the long awaited breakout to the upside for silver bullion investors.
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Image by Zlaťáky from Pixabay
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