Silver to see second-highest deficit in 20 years, as record industrial demand rises 9% in 2024 – Silver Institute’s World Silver Survey

(Kitco News) – Silver prices remain well supported at elevated levels as robust demand continues to outweigh supply, creating a further drawdown in above-ground stocks, according to the latest research from the Silver Insitute.

On Wednesday, the Silver Institute released its annual World Silver Survey, which was conducted by UK-based research firm Metals Focus.

Metals Focus noted that industrial demand continues to dominate the silver market and is expected to hit another record high this year, rising 9% to 710.9 million ounces, propelled by the solar sector as silver demand for Photovoltaic (PV) solar panels rises 20% to 232 million ounces.

At the same time, Metals Focus sees jewelry fabrication rising by 4% to 211.3 million ounces and silverware up 7% to 58.8 million ounces. However, the precious metals research firm forecasts disappointing investment demand, with physical bar and coin purchases dropping by 13% to 212 million ounces this year.

Although investors continue to shy away from the silver market, demand continues to overwhelm supply. The market is expected to see a deficit of 215.3 million ounces, the second-largest deficit in more than two decades. Total global silver demand is expected to rise to 1.219 billion ounces, an increase of 2% from last year.

In an interview with Kitco News, Phillip Newman, Director, and Founding Partner at Metals Focus, said that deficits are starting to matter as above-ground stocks continue to get depleted. He added that in a world of continuous deficits, higher prices will be needed before stocks are released into the marketplace.

“I think there are still sizeable stocks out there, but I don’t think we are at a price level where the metal flows into the market,” he said. “In this environment, as prices rise, these silver holders are not motivated sellers. Even if silver popped up to 35 bucks, would they be sellers? I’m not entirely convinced.”

In this environment, Newman said that although investors should expect to see some volatility, there is long-term value in the silver market, well supported by solid demand.

“One of the advantages of silver industrial demand is there’s so many end uses that if one backs off, another one tends to pick up the reins. That is the exciting thing about this market,” he said. “Let’s just use AI as an example, not only in terms of the energy and computer power required, but what possibilities open up because of all this. What new applications will be created because of AI.”

Newman added that he also expects solar demand to continue to grow. While the amount of silver in each solar panel may continue to decline, the overall number of panels being created grows.

Although investment demand in silver has lagged, causing it to underperform gold, Metals Focus expects that this trend has only started to reverse. Newman said the historical average for the gold/silver ratio is around 70 points. Even as silver begins to outperform gold, the ratio remains fairly elevated, holding above 83 points.

“Even with the recent retreat, a still high gold:silver ratio will also attract some investors who view silver as undervalued over the long term, perhaps also as its strong fundamentals gain attention,” the analyst said in the report.

While investors have been slow to embrace silver, Newman said that growing deficits have changed the investment landscape. He added that Metals Focus expects the silver market to see annual supply deficits for the foreseeable future.

“A new dynamic is being established that is now underpinning the market. Investors should get used to the idea that deficits are here to stay for the time being,” Newman said.

The forecasted 2024 deficit comes as Metals Focus said the deficit in 2023 was 184.3 million ounces. The silver market has seen a structural deficit for three consecutive years.

Demand last year was driven by industrial applications, which rose to 654.4 million ounces.