JOHANNESBURG (miningweekly.com) – Market analyst Thomson Reuters GFMS expects overall global silver supply to fall 3% to 1.02-billion ounces in 2015, driven largely by flat mine production, a 5% drop in scrap return and net dehedging of 12.6-million ounces of the metal, it said this week.

Presenting the firm’s Interim Silver Market Review at the yearly Silver Industry Dinner, in New York, senior analyst Erica Rannestad said mine production was slated to total 867.2-million ounces this year, up 0.3% year-on-year, but marking the weakest performance since 2002, when mine production fell 2%.

“Healthy increases in primary silver mine production, particularly in Mexico, were partially offset by losses in silver output from base metals mines. Scrap supply is expected to fall for the fourth consecutive year, continuing a downward trend that began after yearly average prices and scrap levels peaked in 2011,” she maintained.
 
According to GFMS’s bullion coin survey, silver bullion coin sales reached a fresh record high in the third quarter of the year, totalling 32.9-million ounces and demonstrating a 95% year-on-year increase.

The slide in silver prices in July and August to six-year lows triggered a surge in buying in the silver coin market, particularly in North America, where coin sales increased by 103% to 23.6-million ounces in the third quarter.

“This largely unexpected surge resulted in an unprecedented shortage of current year silver bullion coins among the world’s largest sovereign mints,” noted Rannestad.

Silver coin demand was forecast to increase 21% in 2015 to a record high of 129.9-million ounces. Coin demand should account for 12% of physical demand this year, up from 10% in 2014 and just 4% ten years ago.
 
Silver demand from the photovoltaics industry was forecast to increase by 17% to 74.2-million ounces this year, just shy of the record 75.8-million ounces in 2011.

Solar would make up 13% of overall industrial demand – up from 11% in 2014 and just 1% a decade ago – while silver demand from ethylene oxide producers was predicted to increase 49% to eight-million ounces in 2015 – the highest since 2010.

“Despite increased demand from these industries, total industrial demand is forecast to fall by 4% to 570.7-million ounces and to account for 54% of physical demand in 2015,” she held.
 
The firm forecast total physical demand to contract by 2.5% to 1.05-billion ounces for the year, primarily driven by a 12.9-million-ounce drop in electronics demand.

“Demand from the electronics sector has been falling since 2011, largely owing to thrifting and the trend towards consumer electronics miniaturisation. While these trends remain intact in 2015, the decrease has been precipitated by a weaker economy in China, where silver electronics demand is expected to decrease by 7.9-million ounces, as well as in other developing countries, such as India,” Rannestad said.

China accounted for 28% of silver demand in global electronics fabrication.
 
Jewellery fabrication was forecast to total 218.9-million ounces for the year – a 2.5% decrease from last year’s level – despite increasing at a “healthy” pace in Thailand (14%), the US (9%) and Italy (8%).

In China, however, jewellery fabrication had dropped 25%.

“This sharp decline is largely attributed to offshoring of jewellery manufacturing to South-East Asian countries and weaker domestic silver jewellery consumption,” she asserted.
 
Thomson Reuters GFMS expected the silver market to be in a yearly physical  deficit of 42.7-million ounces in 2015, marking the third consecutive year the market had realised a yearly physical shortfall.

“While such deficits do not necessarily influence prices in the near term, multiple years of yearly deficits can begin to apply upward pressure to prices in subsequent periods.

“This year, however, net outflows from exchange-traded fund holdings and derivatives exchange inventories on a year-to-date basis have lessened the impact of the physical deficit, bringing the net balance to ‑21.3-million ounces,” she commented. 
 
Silver prices averaged $15.91/oz in 2015, which was 18.3% lower than in the same period in 2014. Thomson Reuters GFMS forecast silver prices to average $15.51/oz for the full calendar year.