While many investors have turned their back on precious metals like silver and gold, there are a number of catalysts that suggest prices will rebound in 2015. While silver prices have fallen, and investor sentiment is negative, the fundamentals for silver are getting better.
This includes the supply-demand imbalance, increased demand for silver for jewelry, and increasing demand for its use in technology.
Supply and Demand Imbalance to Send Silver Higher
In 2014, silver production from mines increased five percent year-over-year to a record 877.5 million ounces. This represents the 12th consecutive year of gains. But it will be different in 2015. Production is forecast to fall to 850 million ounces in 2015 amid a shortage of new mines and reduced production at aging mines. (Source: Bulliondesk.com, May 11, 2015.)
Case in point; Canada, one of the world’s biggest silver-producing countries, has seen its production levels slide. In January and February of 2015, silver production was at 64,330 kilograms. In the same period in 2014, silver production was at 73,390 kilograms. That represents a year-over-year decline of 12%. (Source: Natural Resources Canada, last accessed May 14, 2015.)
While it’s easy to see silver production decreasing amidst lower prices, it’s difficult to reconcile in an environment with increasing demand. In 2014, a year where silver prices tumbled roughly 18%, demand outstripped supply by almost 22%. Total silver demand in 2014 was 1.07 billion ounces while total mine production was 877.5 million ounces.
Silver demand in 2015 is projected to grow by four percent year-over-year to 1.11 billion, while production will be roughly 850 million ounces. Where does the shortfall come from? Existing stock. But how long can this trend continue?
Increasing Sector Demand
In 2015, emerging economies are projected to boost industrial demand of silver to 564 million ounces while silver jewelry demand will reach 295 million ounces in 2015. Demand for silver will also come from increasing demand for solar energy and other electronic, medical, and industrial uses.
Demand for solar power is set to increase 30% in 2015 to 57 gigawatts of electricity. China is expected to account for around 17 gigawatts of solar capacity alone in 2015. Seventy million ounces of silver will be needed just to meet the manufacturing demand for solar energy cells in 2015. That will account for around eight percent of the silver mined in 2014. (Source: Telegraph.co.uk, May 11, 2015.)
Despite tighter silver supplies and an increasing demand for silver, analysts are lowering their price forecast for the next two years. Projections for silver are to average $17.05 an ounce in 2015 and $18.25 an ounce in 2016. In 2017, silver is expected to average just $12.00 an ounce. Long-term analysts see silver trading at $24.00 an ounce.
Despite the pessimistic outlook for silver prices, it’s quite possible that silver producers will not be able to meet the increasing demand in the coming years.
Top 3 Silver Stocks to Watch in June
Silver Wheaton Corp. (NYSE/SLW, TSX/SLW)
Silver Wheaton Corp. is the largest precious metal streaming company in the world. The company currently has streaming agreements for 21 operating mines and six development-stage projects. (Source: Silverwheaton.com, last accessed May 14, 2015.)
Besides initial upfront payment, Silver Wheaton has no ongoing capital or exploration costs, nor does it hedge its production. Its operating costs have been historically fixed at roughly $4.00 per ounce of silver and $400.00 per ounce of gold produced.
During the first quarter of 2015, Silver Wheaton announced record production and the addition of more gold from one of its cornerstone assets. For the first time ever, the company produced over 10 million ounces of silver equivalent in one quarter. The company also said it will be maintaining its quarterly dividend of $0.05 per share. (Source: Silverwheaton.com, May 7, 2015.)
Coeur Mining, Inc. (NYSE/CDE)
Coeur Mining, Inc. is the largest U.S.-based primary silver producer with significant gold production. The company’s wholly owned operations include: the Palmarejo silver-gold mine in Mexico, the San Bartolomé silver mine in Bolivia, the Rochester silver-gold mine in Nevada, the Kensington gold mine in Alaska, and the Wharf gold mine in South Dakota. It also has two silver-gold feasibility-stage projects in Mexico and Argentina, and exploration activities in Alaska, Argentina, Bolivia, Mexico, and Nevada.
In 2014, Coeur Mining produced 32.2 million ounces of silver equivalent at the high end of guidance. In 2015, production is expected to be 14.8-16.0 million ounces of silver and 294,000-323,000 ounces of gold, or 32.4-35.4 million ounces of silver equivalent. During the first quarter of 2015, Coeur announced that adjusted all-in sustaining costs declined eight percent to $17.66 per silver equivalent ounce. (Source: Coeur.com, last accessed May 14, 2015.)
Hecla Mining Co. (NYSE/HL)
Hecla Mining Co. is not only one of the largest and lowest-cost U.S. silver producers; it is also a growing gold producer. It is the oldest precious metals mining company in North America. (Source: Hecla-Mining.com, last accessed May 14, 2015.)
The company owns two primary silver mines in Alaska (Greens Creek) and Idaho (Lucky Friday), as well as the Casa Berardi gold mine in Quebec. In 2015, expected silver production is 10.5 million ounces while expected gold production is 185,000 ounces. It also has a number of exploration properties and pre-development properties.
The company has consistently grown its reserve base for future production, with 2015 reserves totaling 173 million ounces of silver and 2.1 million ounces of gold reserves.