Silver Supply/Demand Crunch Part II: Primary Silver Producers Stuck in Quicksand and Still Sinking
By Jeff Clark
Senior Analyst, GoldSilver.com
As we outlined in our silver supply/demand crunch article, the silver market has entered a structural imbalance. It is not temporary. Global supply is locked into a decline, leaving the industry ill-equipped to respond meaningfully to any spike in demand of physical metal for the foreseeable future.
Underpinning the erosion in supply is the deterioration in mine production. This is important, because most of the bullion you and I buy comes from newly-mined silver. Secondary sales (products that have been previously bought and sold) will always have a place in the bullion industry—and a growing role in a supply/demand crunch—but to be prepared for the kind of rush Mike Maloney see ahead, mine production will need to be healthy and rising.
It is neither of those things, as you’re about to see. Global mine production is caught in an intractable downward spiral, and the tiny sector of primary silver producers are stuck in an unhealthy quagmire. Worse, there’s no real end in sight.
This is both concerning and exciting. Here’s why…
Silver Miners: Keeping Their Chin Just Above Water’s Surface
Global silver supply fell last year due to a decline in both mine production and scrap supply. But the drop in mine supply was the primary contributor to the decline. And it’s the primary reason new supply will continue to fall.
Most industry consultancies predict that silver mine production will be lower again this year, and as a result drive total supply lower. If this plays out as most analysts expect, silver supply will fall to levels last seen in 2008.
Here’s what the annual change in mine supply looks like since 1951.
The current drop already outweighs anything we’ve ever seen in the past, including the four-year drop in the early ‘90s. Worse, no reputable analyst I know of is predicting that silver mine output will suddenly reverse and grow any time soon.