Silver set for record highs as LatAm miners plot comeback

Global economic turmoil and green technology demand will spur silver prices to record highs in the near-term, according to experts, as output by Latin America’s dominant producers rebounds from COVID-19 disruption.

Prices of silver – a key component of solar panels as well as a metal for investment – surged in 2H20 amid massive pandemic-related economic stimulus by governments globally, peaking above US$29/oz in February 2021, compared to a range of US$14-20/oz in 2015-19.

But unlike gold, which rose above US$2,000/oz for the first time last August, silver has yet to test its record highs of nearly US$50/oz in 2011.

This could be set to change, potentially as soon as next year, according to analysts at New York-based commodities consultancy CPM Group.

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Prices are likely to move sideways in the coming months, within the US$23-32/oz range, managing partner Jeffrey Christian said at the launch of the company’s silver yearbook.

“Then in Q4 and into 2022 we think the silver price will start rising again, at a relatively modest rate and then at some point it will accelerate and probably blow past the record prices of around US$50/oz we saw in 1980 and then in 2011,” said Christian.

This forecast rise reflects expectations of further global economic crises, with problems possibly in an “obscure corner” of the debt markets leading to recessions, pushing investors toward safe havens, such as precious metals, he said.

“Economic problems that led to recent recessions haven’t been resolved and have got worse in some ways,” said Christian.

The bullish view on silver – which will have significant positive ramifications for dominant producers Mexico and Peru – was shared by Brad Cooke, founder and executive chair of Mexico-focused miner, Endeavour Silver.

Silver always outperforms gold in bull markets because it is a much smaller market and it is a “reasonable assumption” that the gold:silver price ratio will return to historical norms of 50-60:1, compared to 67:1 currently, and perhaps to recent lows of 31:1, according to Cooke.

“Gold breached that [2011 price] high. Silver didn’t come close to reaching its [record] high, but it will,” he said in an interview with Bloor Street Capital.

RISING DEMAND

Forecasts for higher silver prices are in part underpinned by expectations of strong investment demand for the metal.

Following years of net outflows, net investment demand reached 80Moz last year due to the massive liquidity pumped into the market globally in response to COVID-19, coupled with a forecast boom in demand for the metal from green technology, such as renewable energy, CPM’s VP of research, Rohit Savant, told the yearbook launch.

“This year we expect a strong increase in investment demand and we are projecting about 120Moz of net purchases during the year,” said Savant, who added that this would be due to the same factors at play last year coupled with expectations of higher inflation over the coming quarters, which supports higher precious metals prices.

Fabrication demand is expected to remain muted, however, at around 880Moz, after last year’s 5.6% drop to 875Moz.

The marginal rise reflects strong solar demand offset by softness in other sectors such as electronics, photography and jewelry.

SUPPLY HEADWINDS

Total silver supply, comprising mine production and scrap supply, fell to 954Moz last year from 966Moz in 2019, Savant said, reflecting COVID-19 shutdowns in major producing countries such as Mexico and Peru.

But even without the pandemic, global mine output was expected to fall last year.

“Silver prices have been extremely weak for an extended period of time. We haven’t seen a lot of new mine capacity come on stream and we have seen pretty large silver mines shut down for various reasons, all of which have been weighing on silver mine production,” Savant added.

But supply will rebound this year, rising back above 1Boz, he said.

“That has to do with the normalization of mine production as well as higher silver supply from certain primary silver mines,” said Savant.

New production capacity resulting from projects coming on stream globally will remain weak, however, despite rising exploration spending, which will take years before having any positive impact on mine supply, according to Savant.

POLITICAL, COVID-19 CONCERNS

Production could be impacted by political factors and other concerns in South America, according to CPM’s director of commodities and assets, Carlos Sanchez.

“There is concern about mine production, more so in Peru given the presidential elections coming up,” said Sanchez.

Next month will see radical leftist candidate Pedro Castillo and conservative candidate Keiko Fujimori face off in Peru’s runoff election.

“So far what’s happened with COVID mine production has been mixed in Peru and Chile, due to logistical issues but also political turmoil, a bit of labor turmoil,” he said.

“Going forward we would expect this to become less of an issue as the vaccine makes its way in South America, at a slower rate compared to developed economies, but later this year.”