LAWRIE WILLIAMS: World Top 20 Silver producers and metal’s price prospects

We have always been consistent in publishing tabulations of the world’s top gold miners, but not always so with the equivalent for silver, so here’s a tabulation of last year’s country-by-country silver rankings based on specialist precious metals consultancy, Metals Focus’ annual Silver Focus report released mid-June (while I was away on holiday – hence the delay in collating the figures!)

Metals Focus notes that after a 2% fall in 2017 global new mined silver, output fell again in 2018 – by around 3.4%.  Despite this the consultancy still sees global silver supply in surplus, albeit by only a small amount,  This contrasts with the findings of the other major U.K.-based precious metals consultancy, GFMS, which had estimated a small supply deficit in the past year.  But in neither case are the figures significant enough one way or the other to move the markets and both are likely to see some changes as 2019 progresses.  All in all these could be seen as neutral in effect.

Metals Focus puts the production declines down primarily to falling grades at several large primary silver mines as well as reduced byproduct output from the global copper mining sector.  According to its figures the consultancy estimates that output from primary silver producers fell by 8.4% to 7,457 tonnes, comprising 28.5% of the global total, whereas silver produced from copper mines fell by 4.3% to 5,906 tonnes, or 22.6% of the global output total. Lead-zinc-silver mines, though continue to dominate, producing some 8,416 tonnes or 32.2% of global total silver mine output.  Much of the balance will have come from byproduct output from primary gold and pgm producers.

We have recorded the principal country-by-country output figures in millions of troy ounces in the table below – with those countries which have moved up in the rankings noted by an up arrow.  A notable absentee from the list this year though is Guatemala where the country’s principal silver mine, Escobal – one of the biggest in the world in terms of production – remained closed having been shut down as the result of a dispute with locals in 2017.  This led to a year-on-year drop of 337 tonnes of silver.  Escobal had produced 302 tonnes of silver in the truncated 2017 year and 659 tonnes in 2016.  It is now owned by Pan American Silver which purchased it from Tahoe Resources, but there’s no sign as yet that the ownership change will lead to the mine being brought back into production any time soon.

Other major country production downturns noted by Metals Focus included a 205 tonne fall from world No.1 producer, Mexico, said to be due to widespread lower head grades. Newmont Goldcorp’s big Peñasquito operation in particular suffered from lower throughput as work on the expansion continues. Other notable year-on-year losses were seen in Peru (down 264 tonnes), China (-112 tonnes), Kazakhstan (-110 tonnes) and Morocco (-100 tonnes). These were only partially offset by higher production from India (+122 tonnes), Australia(+100 tonnes) and Bolivia (+93 tonnes).

The consultancy does anticipate global mine production of silver to recover quite strongly in the current year, with a 3.8% rise expected. This does however partly depend upon the resolution of current disruption due to

a community dispute at Peñasquito.  Of course should the Escobal dispute also be settled and production resume under its new ownership, then there could be an even bigger 2019 global increase. But it looks as though we may have to wait longer for this to happen – if it ever does! 

Table 1.  Top 20 Silver Producing Countries (Million ounces)

Rank

Country

2017

2018

Y/Y

1.

Mexico

197.0

190.4

-3%

2.

Peru

147.9

139.4

-6%

3.

China

119.3

115.7

-3%

4.

Russia

  42.0

  43.1

  3%

5.

Bolivia

  38.5

  41.5

  8%

6.

Poland

  41.7

  40.9

-2%

7.

Chile

  40.4

  39.9

-1%

8.

Australia

  36.0

  39.2

  9%

9.

Argentina

  29.9

  31.7

  6%

10.

USA

  33.2

  29.7

-10%

11.

India

  17.0

  20.9

  23%

12.

Kazakhstan

  19.1

  15.6

-19%

13.

Sweden

  15.5

  15.0

-3.7%

14.

Canada

  12.7

  11.7

-7%

15.

Indonesia

  10.4

  10.4

  0%

16.

Morocco

  11.3

    8.1

-28%

17.

Uzbekistan

    5.9

    6.0

  0%

18.

Dominican Republic

    3.7

    5.7

  53%

19.

Turkey

    5.2

    4.6

-13%

20.

Papua New Guinea

    1.7

    2.7

  61%

 

Others

  42.2

  29.2

-31%

 

Global Total

870.5

841.2

-3%

Source: Metals Focus, lawrieongold.com

 

In its Executive Summary to the report, Metals Focus notes that silver prices have continued to disappoint. According to the consultancy, the silver price fell intra-year by 9% in 2018, while the dollar price lost a further 5% in the first half of the current year.  Not a great performance given that the gold price, with which there is usually a strong relationship, has begun to show some welcome strength in the past few weeks in particular.  The Gold:Silver Ratio (which effectively measures the amount of silver needed to purchase an ounce of gold at current prices) had risen to an almost unprecedented 93 plus, which has prompted some analysts to suggest that this may be a great time to buy.  But silver is a much more volatile metal price-wise than gold so potential investors should perhaps be wary – although we see the downside risks at this kind of price level as somewhat limited.

The positive performance of other asset classes – notably equities – meant that a number of macroeconomic factors combined to weigh adversely, while potential investors opinions tended to fluctuate between indifference and aversion towards silver says Metals Focus.  The U.S. economy seemed to be robust and there were expectations that the U.S.’s monetary authorities would continue to tighten interest rates for the foreseeable future in line with what was then seen as a robust growth pattern, while the dollar remained strong, and a strong dollar tends to be negative for metals investment. Overall, this meant that investor interest in gold and, by implication silver, was limited throughout the year.

But things have changed over the past few months with the U.S. Fed now emphasising caution and then foreshadowing rate cuts in the realisation that perhaps U.S. economic growth is not as robust as initially thought.  Gold rose and saw large inflows into the big Exchange Traded Funds – notably GLD – while silver has been seeing massive flows into SLV after liquidations last year.

But, on the negative side, silver’s fundamentals have looked a little suspect.  Above ground stocks have been rising while demand growth looks to have plateaued.  The market appears to have been in surplus for perhaps three years while bar and coin demand looks weak given the overall lack of investor interest in silver – palladium tended to attract more of the speculative precious metals interest, although this has been very much driven by industrial demand and better fundamentals with the metal seeing continuing supply deficits.

Despite these issues, Metals Focus’ stated outlook for silver over the rest of 2019 is cautiously optimistic. In part this reflects an expectation that equity market volatility is here to stay and that occasional downwards corrections, such as those seen on occasion over the last few months, will grow more frequent. Importantly, U.S. dollar strength is expected to come back given the Fed’s likelihood of cutting, rather than raising interest rates.  The U.S. President too has made no secret that he would like to see the dollar index fall as he sees the continuing strength of the dollar undermining the effects of his tariff impositions.

Metals Focus sees all this as raising investor interest in precious metals and driving inflows into gold and silver, with both metals’ prices rallying as a result. Historically silver has tended to outperform gold in a rising gold price scenario, reflecting its smaller market and also the sizeable short positioning in Comex futures that is currently in place. Even so, the consultancy feels that silver’s upside is likely to be capped, both in absolute terms and relative to gold, given the market-specific challenges it faces.

Thus, in spite of the persistent headwinds that silver has faced, Metals Focus remains cautiously optimistic about its price outlook for the remainder of this year. This is mainly premised on its constructive forecast for gold, which in turn is fuelled by expectations that the macroeconomic backdrop is likely to favour investment flows into the yellow metal. This should also benefit silver, given the positive correlation that tends to be in place between the two metals.

One particular key positive the consultancy sees for the two metals is the slowdown in the global economy that seems to be already underway. This is proving more pronounced than previously expected, partly due to growing trade tensions, which are adding to structural challenges across a handful of countries and sectors – and notably those between the U.S, and China. All this is seen as impacting global markets.  Equities, however, remain near all-time highs and, seemingly, most investors are still not betting on a sustained period of lower prices. We believe this will eventually change, after further bad news emerges across major economies.

To this we’d add that at a Gold:Silver Ratio of around 93 we feel that the silver price downside is now extremely limited.  The Ratio has only been higher than this a couple of times in the past 30 years, and then for only a limited period.  For most of the past 20 years or so the ratio has fluctuated between around 35 and 80 and while we reckon a ratio of 35 is unlikely in the next few years, 70 or 80, or even 60, is definitely a realistic level and if it gets down to this silver would again be hugely outperforming gold in percentage terms.

09 Jul 2019

About the author

Lawrence Williams

Lawrence (Lawrie) Williams is a well known London-based writer and commentator on financial and political subjects, but specialising in precious metals news and commentary. He is a qualified and experienced mining engineer having graduated in mining engineering from The Royal School of Mines, a constituent college of Imperial College, London - recently described as the World’s No. 2 University (after MIT).

e: lawrie.williams@sharpspixley.com