Silver Mine Supply To Peak 2-3 Years & Drawdown Of LBMA Inventory – GFMS

According to GFMS, the world is expected to see a peak in silver mine supply in the next 2-3 years.  This statement including this year’s supply and demand statistics were released in the GFMS 2014 Silver Market Interim Report for the Silver Institute.

GFMS states the reason for the peak in silver mine supply is due to “current price levels maintaining production but constraining investment in new capacity.”  Basically, they are saying the current low silver price will maintain production for the meanwhile, but this has created a decline in mining investment, precipitating a peak in global silver production. In addition, they see silver scrap supply falling from 25% of total supply in 2012 to only 16% in 2014.

One striking statistic from the Silver Interim Report is the total drop-off of government silver sales. From 2004 to 2013, net government silver sales totaled 366 million ounces.  Government silver sales hit a high in 2006 at 78.5 million oz and a low of 7.4 million oz in 2012.

World Silver Supply 2014 GFMS

However, GFMS shows in this graph (from the Silver Interim Report), that net government sales fell from 7% of total supply in 2004 to ZIP in 2014. During the past decade, most government silver sales came from China, Russia and India.  Even though government sales were only 7.9 million oz in 2013, it looks as if this official supply has now totally dried up.

And who could blame them.  Why should China, Russia or India sell their government silver bullion into the market for peanuts while the Fed funnels its monetary stimulus through its member banks into the stock and bond markets while capping the value of commodities and the precious metals?

From their press release, GFMS states the following on world mine supply:

On the supply side, mine production is forecast to reach all-time highs in the silver industry in 2014 as supply from Guatemala, Mexico, Chile and Peru increases. This is forecast to see primary supply increase by 3.5% in 2014 to 868 Moz.

GFMS believes total global silver production will increase 3.5% over 2013 to 868 million oz in 2014.  Last year, GFMS reported world silver production at 819.6 Moz.  I gather 2013 will be revised upwards to 838 Moz.  It’s perfectly understandable to revise figures, but how could GFMS miss a whopping 20 Moz??

That being said, the most IMPORTANT FACTOR to understand from their Interim Report is the announcement of the planned peak of world silver mine supply in the next 2-3 years. This actually makes sense if we consider not just the supply constraints coming from reduced mining investment capacity, but also the impact of peak global oil production… which also seems likely to occur in the next few years.

On the demand side of the equation, GFMS forecasts physical silver demand to fall 6.7% in 2014 compared to 2013.  They show small percentage declines in jewellery, photography, silverware and industrial application silver consumption, but a larger drop-off in physical silver bar and coin demand.

Even though GFMS estimates silver bar and coin demand to fall 20% in 2014 compared to last year, they had this to say in their press release:

Meanwhile demand for silver bars and coins has soared in recent weeks as bargain hunting retail investors returned to the silver market after a disappointing first half of the year. Nowhere is this more evident than in India where imports of silver are up by 14% year-on-year for the January to October period and set for an annual record. With imports in the first ten months totaling a massive 169 Moz many vaults in the UK, traditionally the largest supplier to India, have seen significant drawdowns, leading to more supply flowing from China and Russia.

According to the data above, if India continues to import a record amount of silver for the rest of the year, total imports may reach 200 million oz — nearly 25% of total world mine supply.  Also, Indian silver demand is so strong, the UK is experiencing a draw-down of silver inventories at the LBMA.

If Russia and China had to step in and supply silver to India as the LBMA inventories are running low, what does this mean if we see an explosion in physical silver investment demand in the future?? A draw-down of LBMA silver inventories may be the beginning sign of looming future physical delivery problems.

I believe total physical coin and bar demand will be higher than the 192 Moz figure forecasted by GFMS for 2014.  This is down 50 Moz from the high of 242 Moz in 2013.  Furthermore, I would imagine the majority of this estimated decline was in physical bar investment as official silver coin sales remain strong.

Lastly, there is a lot of hype about the Solar Power Industry becoming a huge consumer of silver in the future. I have always stated that industrial silver demand, especially solar power demand, will not be much of determining factor in setting price in the future.  Wall Street analysts continue to regurgitate that industrial silver demand will grow for the next 5-10 years.  Hogwash.

When the peak of global oil production takes place within the next several years, this will impact Global GDP growth.  Matter-a-fact, world economic activity will contract along with the decline in global oil production.  Which means, demand for silver in industrial applications will decline as well.

AND IT ALREADY HAS…LOL.  If we look at this last chart also from the Interim Report, we can clearly see that silver demand in the Photovoltiac Market peaked in 2011 at approximately 65 Moz, and is forecasted to nearly fall in half in 2014 at 35 Moz.

Photovoltiac Silver Demand 2014F GFMS

Sure, maybe the solar power manufacturers are using less silver in their panels… so what.  It’s the overall consumption that matters.  If total silver consumption in the solar power industry is declining, then why do we still hear analysts say this will be a BIG MARKET for silver in the future???

Again, I have always stated that the future spike rise in the price of silver will not be due to industrial demand, but rather to the massive increase in physical bullion investment when the Global Paper Ponzi Scheme implodes.  This is not a matter of IF, but WHEN.

Industrial silver demand (minus photography) peaked in 2011 at 573 Moz and will decline to an estimated 530 Moz in 2014.  However, physical bar and coin demand is four times higher than what it was before the U.S. Investment Banking and Housing Market collapse in 2007 (51 Moz in 2007 & 242 Moz in 2013).

All-in-all, GFMS estimates that silver market will experience a 6 Moz oz surplus this year compared to the revised 85 Moz deficit in 2013.  I believe we may actually see a small annual silver deficit in 2014 when GFMS tallies year-end figures and publishes its 2015 World Silver Survey… come April next year.

Remember, the two most important FACTORS from the GFMS Interim Report:

1) World Mine Supply to Peak in 2-3 years.

2) Draw-down of LBMA silver inventories.

Just watch and see how these two indicators will impact the price of silver in the future.  Unfortunately, the world is not prepared for what’s coming… and very few are invested in Gold & Silver that enjoy a  2,000+ year proven track record as real money, high quality investments, and stores of wealth.

Please check back for new articles and updates at the SRSrocco Report.  You can also follow us a Twitter below:

Enter your email address to receive updates each time we publish new content.

I hope that you find SRSroccoReport.com useful. Please, consider contributing to help the site remain public. All donations are processed 100% securely by PayPal. Thank you, Steve

newest oldest most voted
Notify of
Gaengphed
Guest
Gaengphed

Hi Steve, Every now and then I come over here to check your latest posts about the metals since Turd changed to a paid service. I have to say, I admire your work as your posts are more into the deep. Thanks for all these posts that make it clear where we are heading to. I would like to make notice of a very, VERY, extraordinary happening here in the Netherlands. The DNB (De Nederlandse Bank) has been very quiet about its gold holdings around the world. It has let us known before by a news report that some of… Read more »

CountOfMeltedCrisco
Guest
CountOfMeltedCrisco

Here’s what’s REALLY strange about the Dutch gold : how did THEY manage to get this much gold back from the U.S. when the Germans were only able to get a paltry amount, so far, and the rest by …2020!

What Damocles’ Sword did the Dutch hang over the U.S.’s head that the Germans couldn’t to get that much of their gold back in so short a time?

“Somebody” knows something the U.S. doesn’t want known.

Frank
Guest
Frank

“Why should China, Russia or India sell their government silver bullion into the market for peanuts while the Fed funnels its monetary stimulus through its member banks into the stock and bond markets while capping the value of commodities and the precious metals?” This is why they need to blow all the shorts, and the Federal Reserve naked selling in PM’s, out of the water with physical delivery demands that cannot be met. I liked Harvey Organ’s thesis of the Open Interest being Chinese proxies in the silver market…..getting ready to ask for delivery ALL AT THE SAME TIME. Of… Read more »

tom
Guest
tom

amazing absolutely unfettered corruption everywhere.
so, if u was an insider, with access to info before even the big pension plans, say, then how could u make money off that?
DINGDINGDING—invent 20 minute options!

20-min options on Russell2000, $spx, nas100
there cannot be any sane rational explanation for this garbage. they may just as well install a roulette wheel in the exchanges; that would be only slightly quicker..

go to 5:30 min mark for 90 seconds.
https://www.youtube.com/watch?v=CLbrQV4rRwo&list=UUJkjRhdUtjnSRwNGKZd-FhA&index=5
Gold & Silver dead for 30 years?

Frank
Guest
Frank

I watched the video. He forget to mention the unfunded liabilities, that are also growing 5 trillion plus a year…..so real debt to GDP is really 560%–more than Japan’s. But hey, we are the almighty great America,right? Plus, he forgot to mention that Russia is serious–they will be off any dollar standard completely in 2-3 years. This is a HUGE dollar negative…..because if it were just Russia so what. But the truth is it is also…….CHINA in trade with Russia now, and Brazil, and India……and South America……and Canada……etc. The Powers that be made a big mistake. They should have never… Read more »

RD
Guest
RD

Do not be so sure that they will levitate stocks on a “permanent high plateau”, if they begin to feel to be too much on a corner, to make another lehman accident will blow off some BRICS countries and maybe complete their total prower grab in the west.

tradingforaliving
Guest
tradingforaliving

There will come a day when people will not sell at suggested market prices and this is an example price of cup of coffee $5 and someone offers you the same for a silver coin most people will not sell so the downside is limited it could be $10 or less but then they will have two markets, probably governments will issue regulations to control prices but the markets will have an answer to this its called black market. One more point I want to make what if all central banks are working for the same higher authority there is… Read more »

Frank
Guest
Frank

“What if all the disputes between countries are just lies

I would not be surprised is there is no real west-east tension. They very well could be on the exact same board.

Indeed, gold and silver are wealth destroyers. I am so sick and tired of hearing how stock gains are just nominal. Bullshit. They are real. Stock gains have crushed inflation and the dollar is UP. So the losses in gold and silver are REAL while the stock gains are not nominal…they are real inflation adjusted returns.

Kyle Bass can kiss my ass.

Mike
Guest
Mike

We have been seeing a lot of comments like this lately. 2014 4Q will be remmebered as the bottom of the pullback in metals. The fact that you doubt this statement is evidence that it is correct. 🙂

Frank
Guest
Frank

@Mike, Frankly, anyone calling the bottom is in my opinion a shill to begin with. I don’t doubt that someday anyone who bought gold and silver over the last four–that is 4 years or 1460 days out of the 28,000 days we have to live–we SOMEDAY have a Return on their Investment. Maybe in another 1500 days from now there will be a CAGR (compounded average growth rate for those keeping score) of something that is POSITIVE. But who knows for sure. It might take another 3000 days in the future for a ROI. Or another 10% of our lifetime… Read more »

Frank
Guest
Frank

Oh….and Mike, you should have stuck to your financial adviser back in the early decade.

yuan abet
Guest

Kyle will NOT be kissing anything of yours EVER.He knows as much or more than,anyone of the analysts around,and is therefore respected widely. As to the Ru/Chin cahoots with the west,good joke. When the Chinese decide to reprice gold,and possibly silver,the dollar balloon will be left floating on a tree in the wind.Then we will see if the US military has the balls to play their war games.I think not.R/C has smelt the rat of QE long ago,and their preparations/build-up are well forward.For-warned is for-armed as they say. Saddamerika ,and Britain/the west are going to learn austerity the hard way.The… Read more »

judejin
Guest
judejin

how big is LBMA inventory of silver?

Michael Malerba
Guest
Michael Malerba

Hi Steve…I am assuming that the 2 to 3 year peak production comment by Ned is only credible if we stay at $16 oz? or at we at peak silver regardless of price?

Kansascrude
Guest
Kansascrude

Hey Steve thanks as always. Was a bit shocked to see your forecast on PV demand being so low. Would love to see you and Steve Leeb debate this. He is forecasting demand as high as 50% of production in the medium term. http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2014/11/18_The_Stunning_Reason_Why_Silver_Is_Set_To_Skyrocket.html “What this means is that on a yearly basis the world is going to have to triple its silver consumption for photovoltaics. This also means is that if the world stays on this course that the I.E.A. has mapped out, by 2017 photovoltaic demand could represent an astonishing 50 percent of all silver demand. And by… Read more »

lastmanstanding
Guest
lastmanstanding

Peak silver in 2-3 years…USGS if I recall (or one of those organizations) predicts silver extinction by 2020. So by 2016-17 peak silver to possibly no silver in 2020…that should be interesting. Let’s face it…without silver, tech is over…without oil, tech is over, without oil, silver is over…re-occurring theme recognizable yet? I would like to believe that one of us regular guys/gals has already developed an energy source for the future. I truly believe someone has and the bastards have stolen and concealed it from us. In time, there will be no way for them to continue the ruse, the… Read more »

David
Guest
David

Have to keep telling people, I have a B.S. in Geology and silver will NOT “go extinct” by 2020, or 2050 for that matter, regardless of what some bureaucrat spokesman may be saying. That is total bullshit, and people need to realize that.

Average above-ground ore grades will be lower, yes. A lot more energy will be expended finding, mining, and refining, yes.

How much is under the oceans is FAR more than has ever been mined. Some of that is mine-able if the price is right.

Kansascrude
Guest
Kansascrude

Well maybe the trend has been down on solar but according to Leeb unless the financial Armageddon is fully at hand the Chinese will blow the doors of of Solar installations over the next 7 years! Why because they have now demonstrated the financial economics versus coal especially against imported coal. The environmental benefits seal the deal. Leeb is a longtime Peak Oiler and even Gail Tverberg of the Oil Drum and now Finite Living is taking nice about Solar. As the Chinese have now made the 72 Gigawatt decision the die is cast for an increase in demand for… Read more »

yuan abet
Guest

Nitwits and morons abound,present company excepted,of course.Amerika sneezes ,UK catches a cold,as the saying goes.It seems the Pythons have taken over the brit gov.Just as shale is revealed as useless,they want to drill thousands of holes,and go down the same tired route.Oh well. Solar,I also disagree with you Steve,although you could care less I’m sure. The problem lies in the scale thinking.It is no longer massive build in the future.Local scale WILL be the answer to many of the wrecks capitalism has produced.It’s just that the elites can’t stand the idea.Why,they lose control of their slaves.And that means that silver… Read more »

judejin
Guest
judejin

i bumped into an investors meeting of the then much anticipated and hyped pan-asia metals exchange. what surprised me is that the crowd is made up of mostly middle aged men and women, who are definitely not the trader/PM type. so i found out the exchange is not doing much trading. it is running a financing ponzi scheme. these middle-aged men and women are putting in money to get double-digit fixed interest. the loans are backed by rare earth inventory put up by the borrowers. as we all know, inventory numbers can’t be trusted in china or anywhere. this again… Read more »

Michael Malerba
Guest
Michael Malerba

Until China actually ramps up it’s investment in PV I wouldn’t get too excited….Let the data speak for itself and go from there….

HughK
Guest
HughK

Hi Steve and all,
I’m watching the price of First Majestic (AG) today and I see a big drop – about 7% http://finance.yahoo.com/echarts?s=AG+Interactive#

I was wondering if anyone else is watching what is happening with AG. Here is an interesting article from Seeking Alpha with some good data on falling revenue and falling free cash flow from ops:
http://seekingalpha.com/article/2687995-first-majestic-silver-mojo-where-art-thou

Cheers,
Hugh

WhatsUpDoc1958
Guest
WhatsUpDoc1958

How does India’s easing of gold import restrictions affect India silver import demand?

Will India silver import demand decline due to easier gold imports?

larry smaith
Guest
larry smaith

Sorry but silver mining will not increase production this year as Cannington’s ore grades are falling off a cliff and many mines have closed!
I guess you don’t follow this as closely as I do!
70 million ounces have left the production side just from mines that have closed!
Also demand will be much higher than shown!
Canada and the U.S. alone did over 70 million ounces this year and was on line to break 80 million except they ran out of silver rounds to sell!
Your whole premise is wrong sorry!

larry smaith
Guest
larry smaith

I would also like to add with India up China up the U.S. up Russia up and mining down and yes it is down how do you see a build in inventory? I called it 100% right as of August of last year of over 100 million ounces short of supply! This year will be much worse! Also how can scrap be anywhere near last years when the price is lower and last year scrap fell off the face of the earth? You cant sugar coat something that is so bad with mines closing and others cutting back on supply… Read more »