While Peru’s silver production surged in the beginning of 2016, it experienced a double-digit decline in December versus the same month last year. Peru is the second largest silver producing country in the world, trailing Mexico by approximately 40 million oz, but now leading third-ranked China by a wide margin.
Peru started off 2016 with a bang by increasing silver production 14% in the first three months of the year:
(note: Enero = January, Marzo = March, Plata = Silver)
The mining production figures in the table (Source: Peru Ministry of Energy & Mines), shows that Peru’s silver production in March increased 10% versus the previous year and nearly 14% in the first three months compared to the same period in 2015.
However, during the last quarter of 2016, Peru’s silver production started to level off and then declined in November. For example, Peru’s silver production declined 2% in November versus the same month last year and even lower by 11% in December:
The highlighted red area shows Peru’s silver production declined 11.38% in December versus the same month in 2015, while overall production increased 6.65%. What is interesting to see here is that Peru’s strong percentage gain in silver production in the first half of 2016 was cut in half as production leveled off and then declined in November and December versus the same two months in 2015.
According to the data put out by Peru’s Ministry of Energy and Mines, the country’s silver production will increase from 4,102 metric tons (mt) in 2015 to 4,374 mt in 2016. This is an increase in silver production from 132 million oz (Moz) in 2015 to 141 Moz in 2016.
However, this big surge in Peru’s silver production may peak and decline as mining investment has declined significantly over the past three years. When the spot price of all metals were reaching new highs 2011-2013, mining investment in Peru surged to a record high of $9.9 billion in 2013:
Unfortunately, as the commodity and metal prices declined sharply after 2013, investment in Peru’s mining industry plummeted. As we can see, Peru’s mining investment fell 57% in 2016 versus its peak in 2013… and 44% compared to the prior year.
While overall mining investment has most certainly dropped significantly in the past three years, the biggest decline came in the “Plant Investment” area. Investment in Peru’s mining plant capital expenditures fell a stunning 83% from $1.4 billion in 2013 to $234 million last year. This huge decline in Peru’s mining investment will have a negative impact on future metals production in the country.
Furthermore, the Silver Institute (using Thomson Reuters GFMS data) forecasts that global silver production will decline 1% in 2016 even with a 6.6% growth in Peru’s domestic mine supply. When the U.S. and global markets finally crack, the prices of base metals will continue to decline. Thus, base metal’s production will likely start to fall off in the coming years.
This will have a negative impact on global silver production as copper, zinc and lead account for 56% of by-product silver production (2015). A 20% decline in global copper, zinc and lead production, would likely knock off 100 Moz of global silver production. This assumes that copper, zinc and lead by-product silver production of 500 Moz in 2015, would fall 20% to 400 Moz.
Regardless, the world is now reaching peak production in energy and metals. Unfortunately, the downside of the production profile will not be slow and subtle. Rather, we will likely experience something resembling a CLIFF-LIKE decline in the future.
Global silver supply will be impacted a great deal more than most other metals due to the majority of its supply coming from base metal and gold production.
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