Credit: Shutterstock photoThursday May 16, 2013 12:15 PM
(Kitco News) - Fabrication demand for silver slipped in 2012, but silver's usage in industrial applications is expected to rise next year as jewelry purchases pick up and photovoltaic use rebounds, said the CPM Group.
Investment demand for silver is expected to slip after a strong 2012 as investors are less willing to chase higher prices, the New York-based consultancy said in its annual Silver Yearkbook report that reviews the state of the silver sector.
In 2012, total fabrication demand was 859.1 million ounces and investment demand was 122.5 million ounces. In 2013 fabrication demand is seen rising to 876.8 million ounces, while investment demand is seen falling to 105.7 million ounces.
Fabrication Demand
Total silver fabrication demand in 2012 declined 1.8% from 2011's level, pressured by drops in demand from the photography, jewelry, and photovoltaic sectors, along with lower demand from India, they said. India accounts for 10.4% of total silver fabrication demand and 17.0% of jewelry and silverware demand. The reduction in those sectors and the lower Indian demand more than offset an increase in demand from the electronics, housing, and other sectors.
The European recession dragged down silver fabrication demand in 2012, CPM Group said, adding that Western Europe accounts for 17.7% of fabrication demand and was down 7.3% during 2012, from 2011.
The biggest source of fabrication demand for silver comes from jewelry and silverware, and this demand fell 1.4% because the weakness in India and Western Europe. The estimated jewelry and silverware demand at 300 million ounces. "The weak economic conditions in these countries resulted in reduced demand despite the decline in silver prices . Weakness in gold prices also reduced the attractiveness of silver as a substitute in the jewelry sector," they said.
Demand from the solar panel industry fell 12% in 2012, to 47.5 million ounces, first time this has occurred since CPM began separating out silver photovoltaic data in 2000. They said a slowdown in solar panel production growth and substantial thrifting of silver in solar panels resulted in a decline in silver demand. "Reduction of government subsidies for solar panel installations in Germany, Italy, and other major markets starting from late 2011 reduced demand for solar panels," they said.
Silver's use in the photography sector continues to decline as more consumers purchase digital, rather than film, cameras. Silver demand from the photography industry fell 8.4% in 2012 to 89.9 million ounces. This 8.2 million-ounce decline was the largest drop in demand by a major sector last year.
It was the combination of lower use of silver solar applications and the drop in film usage that led to a fall in industrial use, they said.
Demand for silver in electronics use was 1% higher in 2012, at 224.8 million ounces, but CPM Group noted 2012's growth saw a slower rate of gain, versus the 4.5% increase in demand in 2011. The firm said a drop in personal computer shipments globally resulted in the slower rate of growth. Demand in Europe and other developed countries caused PC shipments to fall, but the growth in the tablet market has diverted market share from the PC market. "Tablets contain about a tenth of the amount of silver as personal computers, so this emerging trend is expected to be somewhat negative for silver electronics demand over the next several years," they said, though they note PCs contribute to only 5% and 10% of electronics demand.
CPM Group said fabrication demand from other industrial uses rose 0.1% to 187.9 million ounces. These other uses include brazing alloys and solders, chemical catalysts, nuclear energy production, dental and medical applications, among other uses.
For next year, CPM Group sees a rebound in demand from the jewelry and photovoltaic sectors, which are forecast to lift total silver fabrication demand to 876.8 million ounces in 2013, up 2.1% from 2012. "Jewelry demand is expected to benefit from the ongoing decline in silver prices and an improvement in India's economic condition. Demand from this sector is projected to increase to 313.9 million ounces, up 4.6% from 2012. Photovoltaic demand is expected to improve due to a reduction in thrifting activity in the industry," they said, with demand for solar seen at 51.5 million ounces. While that is a rise from last year, it remains under 2011's level of 54 million ounces.
The slower rate of growth in the electronics sector is expected to continue in 2013 as the drop in PC sales is likely to continue, they said. Demand from this sector is expected to total 226.8 million ounces in 2013, up 0.9% from 224.8 million ounces in 2012. Meanwhile the fall in the photography sector will continue unabated, with demand seen down 6.3% for 2013, to 81.8 million ounces. Demand from other industrial uses could rise in 2013 based on the anticipated overall improvement in global economic growth. That demand is forecast to grow to 193.3 million ounces.
Investment Demand
Bargain hunting by investors pushed investment demand for silver to 122.5 million ounces in 2012, a 32.1% rise versus 2011, which was the sixth-highest level ever, CPM said.
"Silver prices slipped lower meaningfully on three separate occasions during 2012, which provided investors opportunities to step in as buyers. Investors were keen on adding silver to their portfolio but were unwilling to do it when prices rose anywhere near historically high levels," the firm said, noting that the $26 an ounce level attracted buying interest.
Buying interest began to erode toward year-end, CPM Group said, noting that price peaked at lower levels in each of the three price rallies during 2012, which was also "indicative of investors being willing to buy silver only at lower prices, and to their lowering their price expectations as the year progressed."
The firm also said how investors viewed the greater global economy shifted, too. "Investors had come to realize that many of the issues challenging the global economy are expected to continue being a hindrance to global economic growth over the long term, but a financial market collapse might not occur as was being widely believed post the Great Recession," they said.
Investment buying in 2012 came mostly from net additions to silver exchange traded product holdings and investment demand in China, they said. Offsetting this activity was lowered Indian investment demand coin sales. Specifically, ETP silver holdings rose by 51.6 million ounces to 619.1 million ounces by the end of 2012, a 9.1% rise over what was sold during 2011.
Chinese investors bought 22 million ounces of silver in coin and medal form, up 34.7% from 2011, while Indian investors' demand fell 30.8% from 2011's levels, to an estimated 28.9 million ounces. "Weak economic conditions and a rapidly depreciating currency weighed heavily on investment demand for silver in the country last year," CPM Group said.
Investment demand is forecast to decline to 105.7 million ounces in 2013, down 14% from 2012 levels. "Despite this decline, net investment demand is still very high by historic standards. Expectation of lower silver prices during 2013 is reducing interest from shorter term investors in early 2013 as they wait for still lower prices," they said.
The firm said data from the U.S. Commodity Futures Trading Commission suggests that investors are beginning to push away from silver as the non-commercial trader gross short positions in the first quarter of 2013 are growing rapidly. "Gross shorts increased 95.6 million ounces between Dec. 25, 2012 and March 26, 2013. At 129.9 million ounces on March 26, 2013, the gross short position was larger than it has been, by a wide margin, at any time since 2005. This is indicative of a major shift in investors' attitude toward silver, in that fund managers appear to be shifting back toward increased willingness to build and hold large short positions designed to profit from declining silver prices," they said.
CPM Group also noted at 69.3% reduction in net long positions by the end of the first quarter of 2013.
"These developments are expected to weigh on silver prices, which may be used by longer term investors as a buying opportunity," they said.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
