Global Silver Inventories Tipping Point? New Threat To The Fracking Industry

If the world’s stock markets continue to unravel over the next several months, we could experience a tipping point in Global Silver Inventories.  In addition, the U.S. Fracking Industry is now facing a new threat which could lead to a serious drop in domestic oil production.

I sat down with Mike Gleason at Money Metals Exchange and discussed these topics and more:

Here are some snippets of the podcast transcript below:

Mike Gleason: One of the main reasons I wanted to have you on today was to talk about the supply situation in silver, because it’s becoming a very big story. Also because you have such a good handle on what’s going on both in terms of the investment demand reported by your array of industry sources, but also what’s going on with mine supplies. So there are a few out there that are better to comment on all these growing silver supply concerns than you, so thanks for spending some time with us and our audience.

Now I wanted to start out by asking you about mine supply. You have been reporting about the global silver mine production. Exactly, what does your research show in terms of how the world’s major producers are doing, and what is the output been looking like over the past, say, 6 to 12 months, Steve?

Steve St Angelo: Normally, we would see this information released in different websites, but I haven’t seen much of it this year. It’s been surprising. Anyhow, one of the more stunning data points came out of Australia. I look at this information everyday … Try to find out when they’re going to release it. Australia actually reported a stunning 31% decline in silver production in the first quarter. In the first quarter of 2014, Australia produced 491 metric tons of silver. The first quarter of 2015, it had fallen to 340. That is a huge amount. I tried to contact the website to see if this was just a glitch, but they don’t really do a pretty good job. Even if they’re going to revise that number, I don’t see it reviving that much. I haven’t seen revisions that are that large.

We had Australia. They’re down 31%. Peru is the number two largest. Australia is actually fourth. Peru so far is up a little bit. I think they’re about 3½% up compared to last year and that’s as of May. Mexico, which is the largest producer … I found this quite interesting. Mexico is down about 7% year-to-date, but they were down 12% in April and 10% in May. Actually, the first couple of months of the year, their production was up slightly. It started to decline in March, and really fell off a cliff in April and May. Mexico is down year-to-date about 7%. We don’t know China’s figures, because they’re the third-largest producer. We don’t know what theirs are, but I think their production is declining. If we just average the top three of the four here, Australia, Mexico and Peru, I think mine supply is down 6%-7%.

Now certain analysts were saying that we were going to see a fall of overall supply, and that includes recycling of about 4%. Well so far, and I think if Australia continues to show a large decline in the second quarter, I think we will see overall production from the mine supply down 6%-7%. So if you add on the scrap supply that is falling, it could be even higher, almost double the estimates that they were supposed to be. This will just cause a little bit more stress in the market as overall supply this year will fall.

Mike Gleason: All of this is pointing towards the fact that we could see silver premium spike massively and almost without notice. You’ve been saying how many may be complacent and view the premium increases and retail minted product as unimportant, because it’s mainly just a production bottleneck. That may be true to some extent or even mostly, but those same people mainly look at premiums on 1,000 ounce exchange bars and argue that that’s all that matters. We haven’t seen a premium increase yet on 1,000 ounce silver bars, so none of this is a big deal, they say. You’ve made the point that when we do see premiums rise on 1,000 ounce bars, it’s basically game over. Explain what you mean there.

Steve St Angelo: I think we need to understand there are three wholesale markets. There’s three markets in the silver industry. There’s the retail. Let’s just discuss retail when it goes to investment. There’s retail investment silver market. There is the wholesale that supplies the retail, and then there is the overall wholesale silver market where silver is stored at the exchanges. They wholesale it. They get their 1,000 ounce bars or whatever, and then they make their silver products that are sold to the retailers. So, we are seeing already shortages in the wholesale market, that is the one that supplies to the retail. We are not yet seeing a shortage in the wholesale market that supplies the entire silver market. However, when it starts to move there, when it gets in there, I think it will happen very quickly. And if we’re seeing between weeks let’s say, four to six weeks to two months delays now on products, that’s because they’re waiting to get silver 1,000 ounce bars and convert them to smaller products.

What happens when they cannot get the 1,000 ounce bars? So when they say, “Now we have a shortage in the wholesale silver market,” well it’s too late. For analysts or investors to say, “There’s really no shortage now,” and so it goes into the wholesale main market, or by the time it gets there, then it’s too late, and there’s very little silver available. I think on the three exchanges that’s TOKOM, the Shanghai Silver Exchange and the COMEX, there’s only 178 million ounces, but that’s overall silver. Half of that or less than half of that is available to the market. So in a huge increase of institutions as well as large investors and hedge funds, they could totally wipe out the system in no time.

Mike Gleason: I know you covered the energy markets of course very closely as well. One of the, I think, main reasons why the metals have been hurt is because they do trade like commodities at times, and oil has of course fallen dramatically over the last several quarters. What do you make of the future of U.S. oil production and supply going forward, given these low prices, now under $40 a barrel? What do you think we have to look forward to there when it comes to oil production, and what kind of impact do you think that may have on the metals?

Steve St Angelo: I just had an interesting conversation, before we spoke, with a gentleman who is in the … Been in the oil industry for 30 years looking for oil. You know what he told me? They’re not looking for oil right now. The conventional oil guys aren’t looking for oil. He is a conventional guy. That’s where the profits are. The profits are in shale, they have never been in shale (unconventional oil). The interesting thing he told me … Do you know what they’re doing? They are looking for injection wells for water. And I didn’t realize this. The problem he sees, and that is not discussed is shale oil produces a lot of water. There’s a lot water, and it has to be injected back into the ground. It can’t just be thrown somewhere above ground reservoir. It’s toxic. He says now they’re having problems because environmental and issues of where to store all this water.

Not only are we going to see declines in shale oil production because the decline rates are so high. So when they stop drilling, and that is starting to take place, we will see a huge fall in production towards the end of this year, especially if prices remain low, and into 2016. On top of that, as production declines, less oil is being produced, but more water. They have to even find more places to put the water. This is going to be a major issue going forward. We may see a double whammy in U.S. oil production, because we may run out of places to inject this toxic water.

You can checkout the entire interview by watching the Youtube video above or click on the link at the Money Metals Exchange SRSrocco Report Interview.

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15 Comments on "Global Silver Inventories Tipping Point? New Threat To The Fracking Industry"

  1. There is another layer of silver market, where the refineries are buying — producers of silver dore. It works on term supply contracts, such as two quarters of a year (sometimes longer), so the big changes in supply happen at the edge of such terms, the next of which is the end of this year.

  2. Juergen Heil | August 30, 2015 at 2:22 am |

    Just an observation what i have read in the German Press lately. Oil prices are falling due weak demand in China and rising supply from Saudi Arabia, Iran and the ongoing shale boom in North America. How long will take after shale oil have peaked for the MSN to admit that. It just amazing how long the mainstream media is able to put out there lys.

  3. As usual your articles give the appearance of urgency but it’s the same old “if”; “when”
    stuff Butler has been saying for 45 years. Stock markets crashed in China and USA.
    Silver crashes also. A bombing in Yemen? Silver crashes to $14, Iran will get nukes.
    Silver drops. The USA has debt above its eyeballs and silver tanks. Production costs
    were said to be $30 now they are $15. The more silver drops the lower the production
    costs. Let’s face it Steve, this is all B.S. just like Morgan, Schiff, Butler and the rest of
    their cronies. Silver will only rise when demand exceeds supply. And as I see the USA
    citizenry doesn’t give a rat’s ass about owning silver. Next thing I’ll be reading is that
    the earth’s crust is running out of silver by 2200, so start stacking everyone. My forecast
    is based on research and documentation. And if that doesn’t trigger buying read my next
    post on the guy who is mixing minerals making silver in his garage. Joe

    • Juergen Heil | August 30, 2015 at 8:24 am |

      You are wrong, the price won’t rise when demand excite supply. If that would be the case price in Gold and Silver would have risen already. The Prise will rise (explode ) when the Banksters don’t find any Bullion in the corners of there vault anymore to supply the market deficit.
      When that happens the retail market is cleaned out completely in a blink of an eye. Good luck for getting something.If you wait always for a lower price than you have nothing when TSHTF.

    • Joe,

      You’re more than welcome to continue your BELLY-ACHING as long as you like. By the way, your email address no longer works. Anytime I respond to one of your lovely emails, it is automatically returned.

      steve

    • “My forecast is based on research and documentation.”

      Your “forecast” is based on profound ignorance.

      “Next thing I’ll be reading is that the earth’s crust is running out of silver by 2200”

      Read what the USGS has to say about it. Of course there is a lot of silver under the oceans.

  4. as a side note I wonder if silver scrap supply is hard to find. Ohio Precious Metals _OPM- uses only recycled silver to make their silver products. Their products are on delayed shipments as are Sunshine mint and Golden State mint products. We also have the US mint reducing allocations for ASE’s and the Canadian mint is not taking orders for silver Maple Leafs currently. Something is going on.

  5. silverfreaky | August 30, 2015 at 1:41 pm |

    Half of of 180 Millionen onces.That are something about 3000 tons of silver for investment.
    Is that so little?Scratch?

  6. it is better to track the price a retailer is willing to pay for silver if you want to get information on shortages in the retail pipeline. Over the years APMEX has not raised the premium they are willing to pay nearly as often as they hsve raised the premium they sell at. This is because apmex can hedge the silver price at the COMEX with futures contracts but they cannot hedge future premiums on retail coins.

    At this moment the bid / ask spread on Eagles (monster box) at apmex is 15%! That’s huge. We have seen a number of retail silver shortages since 2008 and the premiums always come back down, ESPECIALLY when retailers aren’t willing to pay anymore for silver than at any other time.

    Premiums will be coming down and that is being broadcast loud and clear by what apmex is willing to pay for silver.

    Mike

    • I’m not sure how someone outside of APMEX would know what they are willing to pay for silver.

      Willing to pay higher or not they will pay higher if market forces dictate they pay higher. Their control has limits. Specifically on ASE’s the conditions under which they would pay increased premiums are far less under their control than generic silver.

      • They post the price they will pay right on their website. I’ve been tracking it since 2008.

        Mike

      • They certainly will pay higher if market forces dictate it. My point is that they are not paying higher and that is an indication that market forces are not requiring them to pay higher.

        You could argue that the price they are willing to pay, as posted on their website, is negotiable and might really be higher, but the market isn’t yet pushing the posted “buy” premiums higher at any of the retailers.

        When they start posting $3 and $4 premiums that they are willing to pay for Silver Eagles, then we have a silver shortage.

        Mike

  7. Annual global silver production is less than 15 billion at current prices. We just had a trillion dollar loss on Wall St. or about 70 years of silver production and the Chinese losses are over a trillion ?. Sorry to the naysayers but, silver is undervalued.

    • You can make the same statement about each of these metals. Are they too undervalued due to the amount of wealth invested in businesses? They are cerium (Ce), dysprosium (Dy), erbium (Er), europium (Eu), gadolinium (Gd), holmium (Ho), lanthanum (La), lutetium (Lu), neodymium (Nd), praseodymium (Pr), promethium (Pm), samarium (Sm), scandium (Sc), terbium (Tb), thulium (Tm), ytterbium (Yb) and yttrium (Y).

      I think silver is a great investment at its current price, but some of the insane “analysis” in the gold bug world is twilightzone stuff. Gold and silver are more likely to become widely held in America if gold bugs are a bit more grounded in reality.

      Mike

      • One could also add the better known platinum, far more rare than gold, and palladium, even more rare, to the discussion. But in reference to the comment on being undervalued relative to the amount of wealth invested elsewhere, none of these elements has a history of being money and the antithesis of fiat money. Of course most readers know this but an opportune time to make that distinction.

        It’s why if the amount of fiat I had to acquire another asset class was nearly unlimited I would still own only a token amount of other metals.

        “Gold and silver are more likely to become widely held in America if gold bugs are a bit more grounded in reality.”

        I don’t think they will ever become widely held in America. By the time they may become more widely desirable they will be much harder to obtain…more scarce, higher costs. Other than TV ads most people wouldn’t have a clue how to get an American Silver Eagle. Maybe they figure out they can get a few items from the mint.

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