Silver Surplus and Supply Forecasts

Silver Surplus and Supply ForecastsSilver investors may want to prepare for a feast: the silver market is reportedly already in surplus and an array of miners have forecast production increases for this year.

The silver market has been in surplus for the past several years and is expected to remain so in 2013, Anne-Laure Tremblay, precious metals analyst at BNP Paribas, said in the London Bullion Market Association’s (LBMA) 2013 silver forecast.

In a recent interview with Mu Li, a CPM Group analyst, Kitco’s Daniela Cambone asked for confirmation on reports indicating that there is currently a 207-million-ounce silver surplus.

Li confirmed that the silver market is still in surplus. Investors have been absorbing the surplus metal, but, she added, there is no real shortage of metal in this market.

As miners report their fourth-quarter and 2012 year-end results, many are also issuing 2013 forecasts. A review of these announcements reveals that many companies not only experienced growth last year, but also expect further production increases this year; they plan to do their part to keep the silver market well supplied in 2013.

Hecla Mining (NYSE:HL) was established in 1891. The company made headlines last week when it announced that its silver reserves have reached the highest levels in its history. Hecla also reported 2012 silver production of 6.4 million ounces and stated that it expects that amount to increase by 25 percent this year, to about 8 or 9 million ounces.

First Majestic Silver (TSX:FR,NYSE:AG) has seen its production increase for nine years in a row, reaching 8.26 million ounces in 2012. The company expects the growth to continue, noting in a press release that its silver production could reach 11.7 million ounces this year.

2012 marked the sixth year of production growth for Fortuna Silver Mines (TSX:FVI,NYSE:FM). The company reported output of 4 million ounces, a 59-percent increase over 2011. This year, Fortuna expects to produce 4.4 million ounces of silver.

Pan American Silver (TSX:PAA,NASDAQ:PAAS) is one of the world’s top primary silver producers. The company noted that 2012 was an excellent year as it achieved record production of 25.1 million ounces of white metal. President and CEO Geoff Burns said 2013 is expected to be even better. The company anticipates producing 25 to 26 million ounces of silver in 2013.

Also, Goldcorp (NYSE:GG,TSX:G) announced that it is likely to produce 29 to 31 million ounces of silver in 2013.

However, not all miners have released such optimistic reports about their silver supply.

Coeur d’Alene Mines (TSX:CDM,NYSE:CDE) is another major primary silver producer. In 2012, the company produced 18 million ounces of silver, a 6-percent decrease compared to the previous year. This year, the company believes silver production could hit 19.5 million ounces; however, its forecast also reveals the possibility that supply could remain flat.

Fresnillo (LSE:FRES) is the world’s largest primary silver miner. The company has been experiencing declining grades at its flagship mine, but has been able to offset the declines with production from other sites. It reported that its silver production remained steady in 2012, at 41 million ounces, and has forecast production at that level again this year.

KGHM Polska Miedz (OTC Pink:KGHPF) was the world’s top silver-producing company in 2011, according to the Silver Institute. In 2012, the miner’s silver production rose to 1,274 tons. However, the company warns that production of basic products will be lower in 2013 due to planned maintenance at its Glogow smelter, which is expected to result in a three-month shutdown of the facility. This year, the company is looking for silver production to decline by nearly 200 tons, to 1,075 tons.

In his 2013 LBMA forecast, Bart Malek of TD Securities said silver prices are expected to be supported by tighter supply/demand fundamentals as industrial/investor demand outpaces the increase in global supply. He said the firm expects silver to be very near a deficit throughout the balance of the year, with a considerable risk of a shortage.

 

Securities Disclosure: I, Michelle Smith, own shares of Goldcorp.