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Global silver demand is set to be 16% higher this year, reaching 1.21 billion troy ounces. As a result, the silver market will have the largest deficit in decades this year, according to Concludes the Silver Institute in a new report on the silver market. Demand for silver is set to rise to record highs in all segments this year, including industrial demand as well as demand for jewellery and investment silver.
Industrial demand is increasing mainly due to the ever-increasing demand for solar panels and the increasing use of silver in the automotive industry. More and more silver is needed for the electronics used in modern cars, although this sector is only a small part of the total silver market. Total industrial demand rose 5% to 539 million troy ounces.
Due to all the economic and geopolitical uncertainty, the demand for investment silver in the form of Silver Coins and are growing worldwide. This year, the Silver Institute expects investors to buy a total of 329 million troy ounces of silver coins and bars. Remarkably, the growth is also mainly coming from India, but the demand for physical coins and bars is also increasing in the rest of the world. Demand for silver in the form of ETFs did decline in 2022, mainly due to rising interest rates. Total inventories of these investment products will fall by 110 million troy ounces this year, according to estimates by the Silver Institute, bringing the actual deficit lower. Instead of 194 million troy ounces, the deficit for the whole of 2022 will be 84 million troy ounces.
Furthermore, we saw a strong increase in the demand for jewelry, especially in India. In 2020, Indians bought much less jewellery due to the corona pandemic, but in the second half of this year, India significantly increased imports and the sector caught up. This is expected to continue for a while at the beginning of next year, but then level off again. Worldwide demand for silver jewellery rose by 29% this year to 235 million troy ounces. This means that jewellery accounts for about a quarter of the total global demand for silver.
More demand for investment silver in 2022 (Source: Metals Focus)
More demand for silver jewellery and investment silver in 2022 (Source: Metals Focus)
Demand for silver is 194 million troy ounces greater than supply this year (Source: Metals Focus)
The demand for silver for solar panels has been growing strongly for years. In the pursuit of more renewable energy sources, solar energy is gaining market share. And although less and less silver is used per panel, the total production of panels has continued to increase in recent years. This year, the market received an extra boost from high energy prices, which has made it more attractive to generate solar energy. With the current electricity prices, an investment is quickly recouped, which means that producers of panels increase their production and therefore have to buy more silver.
Demand for silver for solar panels continues to increase due to higher energy prices (Source: Metals Focus)
The cost of mining has fallen slightly in the space of a year, as higher costs of mining silver are more than 100% offset by higher yields from by-products such as gold, lead and zinc. Many silver mines also extract other metals from the extraction of silver, which they were able to sell at a higher price last year. The average production cost of silver mines in the first half of this year was $9.72 per troy ounce. This means that the current Silver price of $21.58 still has an attractive profit margin on the production of silver.
Average production costs of silver mines decreased due to higher by-product yield (Source: Metals Focus)
Also read this article: Who determines the price of silver?
