Long-term silver study forecasts higher prices

From a press release issued by CPM Group...

ew York, NY, 9 December 2010. Silver prices are projected to remain at historically high levels over the next ten years. That is the primary price conclusion of the 2010 edition of CPM Group’s Silver Long-Term Outlook, released today by the New York commodities research and advisory firm.

The 224-page study is a comprehensive analysis of the key market fundamentals of silver that are expected to influence the price of silver over the coming 10 years, through 2019. The report contains projections for global mine production through 2019 on a mine-by-mine basis and provides a detailed analysis of country-by-country silver output. The report also contains a new China section, which provides a thorough analysis of the silver supply and demand of this previously opaque market. It appears that silver use in China as of 2009, was perhaps twice as large as had been believed earlier, the report concludes.

Major uses of silver are discussed in detail, as are relatively new sources of fabrication demand for silver that have been emerging in recent years, such as solar panels. The report also contains analysis on potential new sources of silver fabrication demand that could emerge in the future. Investment demand, a significantly important factor influencing the price of silver, is discussed at length in this report. The Silver Long-Term Outlook provides 10-year projections of supply, demand, and prices under a base case and two alternative scenarios.

Strong investment demand, the single most important factor in influencing the price of the metal, is expected to keep silver prices at elevated levels during the projected period. Investors who view silver as a safe haven asset are expected to continue buying large amounts of silver over the next couple of years as uncertainty regarding global economic growth, financial market instability, and volatility in major currency markets persist. As these concerns recede later in the decade, investment demand is projected to decline. Silver prices are expected to weaken alongside the decline in investment demand as the decade progresses.

Fabrication demand for silver is forecast to rise over the projected period, providing additional support to prices along with strong investment demand. Even in present economic conditions there is strong demand for some of the products in which silver is used, including various electronic components used in a full range of consumer and industrial equipment. Fabrication demand for silver is expected to rise further over the next few years, due to an anticipated improvement in global economic activity coupled with increased use of silver in some of its new and relatively new uses, such as solar panels, silver-zinc batteries.

Primary silver mine production is expected to increase in response to the high price of silver and the relatively low cash and total operating costs. A majority of silver is produced as a byproduct of gold, copper, lead, and zinc, however. The fundamentals for these metals are forecast to be supportive of their prices at least during the initial years of the projected period, which is expected to boost mine production of these metals and as a result that of byproduct silver. During the second half of the forecast period net additions to silver mine supply are expected to decline. This slowdown in net additions is forecast to support silver prices during that time.

This year CPM Group has been able to integrate Chinese silver market supply and demand statistics into its global supply and demand model. The lack of sufficiently reliable statistics on silver fabrication demand and secondary recovery prior to now prevented China’s inclusion in international statistics. CPM has developed what it feels are sufficiently reliable statistics on silver fabrication demand by major industrial category and scrap recovery, relying on a network of industry associations and industrial participants in these markets. Silver use in China is estimated to have risen around three and a half times over the last decade, from 40.8 million ounces in 2000 to 139.2 million ounces in 2009. As mentioned above, CPM’s work indicates that silver use is roughly twice as large as had been suggested by commentators in the western market. Chinese silver fabrication demand is projected to account for nearly a fifth of global silver fabrication demand this year.

The CPM Group Silver Long-Term Outlook is part of a series of long-term studies of precious metals markets. These studies are used by producers for strategic planning and in the preparation of technical reports. In addition, institutional investors and physical traders supplement their internal research with CPM Group’s comprehensive analyses, conclusions, and projections. The reports also serve as authoritative reference guides for silver market statistics. CPM Group sells the reports as stand-alone products, although most clients use the CPM Group reports as parts of broader advisory programs related to the specific metals markets. In addition to silver, CPM Group produces long-term studies with 10-year projections of price, supply, and demand for gold, platinum group metals, molybdenum, vanadium, and other commodities. These projections and reports are updated at least once a year.

About CPM Group:
CPM Group is a commodities research and consulting company that provides detailed research, analysis, and advisory services related to commodities markets and the financial management of exposure to commodities. CPM Group clients include major producers, processors, market intermediaries, and industrial users of commodities. Institutional investors, hedge funds, private equity funds, and family offices rely on CPM Group for accurate analyses of commodities markets, retaining CPM Group for research, analysis, and advice on managing their financial exposure to these markets. Central banks; foreign ministries; agencies involved in attracting foreign direct investment, strategic metals policies, energy and agriculture; and sovereign wealth funds draw on CPM Group’s knowledge and experiences since the 1980s in these areas. CPM Group’s services range from basic research and consulting on commodities markets to investment banking advisory work, commodities management, and asset management services.

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