interim silver market review 2020 - the silver institute · 2020. 11. 17. · mined silver...
TRANSCRIPT
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Silver InstituteInterim Silver Market Review 2020
Philip Newman & Adam Webb, Metals Focus
November 17th 2020
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2
Silver now holding in a higher range, despite recent weakness
Source: Bloomberg
10
12
14
16
18
20
22
24
26
28
30
1000
1200
1400
1600
1800
2000
2200
Jan-19 Apr-19 Jul-19 Oct-19 Jan-20 Apr-20 Jul-20 Oct-20
US$
/oz
US$
/oz
Gold Price Silver Price
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3
Relationship with base metals has strengthened recently, but…
Source: Bloomberg
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4
...the gold-silver dynamic continues to dominate
Source: Bloomberg
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5
The gold:silver ratio had fallen noticeably
Source: Bloomberg
60
70
80
90
100
110
120
130
Period average ratio
-
6
Overall though, it remains above the long-term average
Source: Bloomberg
30
50
70
90
110
130
Period average ratio
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7
The macro environment remains pivotal
Source: Bloomberg
“Spread between US high yield corporate debt and 10Y Treasuries”Risk appetite has grown recently
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8
The macro environment remains pivotal
Source: Bloomberg
“10-2Y and 30-5Y Treasury Spreads”Interest rate expectations rising, but remain low in absolute terms
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9
The macro environment remains pivotal
Source: Bloomberg
“US 5Y Breakeven rates and CRB Index”Inflation expectations have recovered from exceptionally low levels
earlier in the year, but remain modest
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10
Investor positioning constrained by EFP issues
Source: Bloomberg
10
15
20
25
30
-300
-200
-100
0
100
200
300
400
Nov-17 Nov-18 Nov-19 Nov-20
Net Long Silver Price (RHS)
Moz US$/oz
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11
What happened to EFPs?
SILVER EFP
GOLD EFP
• Early jump due to COVID disruptions
• Temporary closure of Swiss refineries made it hard to re-cast LGD bars to 100oz/kilobars
• Logistics bottlenecks due to limited flights
• COMEX market makers tend to hedge loco-London, while physical delivery is very rare
• Dealers who were short Comex exposed to risk that counterparties would not roll. Led to rush to buy back shorts
• High demand for EFP, effectively a long Comex/short loco-London transaction
• Position limits also added pressure
• EFPs now eased, reflecting sufficient COMEX inventories and market conditions more generally normalizing
• Jump in silver EFP in spite of Comex stocks being at record high levels
Source: Bloomberg (Morgan Stanley EFP Index)
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12
Bullion stocks rising, but most cross-border moves reflect EFP dynamics
Source: Bloomberg, LBMA
LBMA
COMEX
0200400600800
1,0001,200
Jul-16 Jan-17 Jul-17 Jan-18 Jul-18 Jan-19 Jul-19 Jan-20 Jul-20
Moz
0
100
200
300
400
Jan-15 Jan-16 Jan-17 Jan-18 Jan-19 Jan-20
Moz
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13
ETP holdings hit record highs, driven by US funds
Source: Bloomberg, various ETF issuers
4
8
12
16
20
24
28
32
0
200
400
600
800
1,000
1,200Value ($bn)Moz US ETPs Other ETPs Value ($bn)
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14
Global supply summary
Source: Metals Focus
1,019
962
-52.2
-15.7+0.2
+11.1
900
920
940
960
980
1,000
1,020
1,040
2019 MineProduction
ProducerHedging
Official Sector Scrap 2020E
Moz
-
Mined silver production in 2020 lower due to COVID
Mined silver production is forecast to decline 6.3% y/y in 2020 to 780Moz.
The biggest declines are expected in Peru, Chinaand Mexico due to COVID related disruptions.
Source: Metals Focus
-40 -30 -20 -10 0 10
PeruChina
MexicoArgentina
CanadaBoliviaRussia
United StatesAustralia
KazakhstanTurkey
MoroccoIndiaChile
Change from 2019 to 2020 (Moz)
700
750
800
850
900Moz
Silver Mine Supply COVID Loss
15
-
COVID disruption peaked in Q2.20
16*US statistics not yet available for AugustSource: Metals Focus, Country reported statistics
Mines in several major silver producing countries were forced to temporarily close due to COVID-19 lockdowns that were implemented from mid-March, however mining in other countries was allowed to continue as normal.
-80
-60
-40
-20
0
20
40
60
Peru Mexico Canada United States* Chile
Chan
ge F
rom
Janu
ary
2020
Silv
er P
rodu
ctio
n (%
)
Feb Mar Apr May Jun Jul Aug
-
Costs declined year-on-year in H1.20
17
Average AISC for primary silver mines in H1.20 was down by 3% y/y to $11.01/oz as higher by-product credits and the closure of some high-cost operations in 2019 offset increased costs from COVID-19 related disruption.
Note: costed production = c.80% of primary silver supplySource: Metals Focus – Silver Mine Cost Service
-20
-10
0
10
20
30
40
0 25 50 75 100
$/oz
Cumulative Silver Production - Market Share (%)
H1.20 AISCH1.19 AISC
H1.20 Silver Price ($16.64/oz)
Q3.20 Silver Price ($24.36/oz)
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FX rates and metal prices push costs lower
Local currency weakness to the US dollar has constrained costs in many countries.
Higher gold prices have boosted by-productcredits for silver miners.
Note: AUD - Australian dollar, RUB - Russian ruble, MXN - Mexican peso, PEN - Peruvian solSource: Bloomberg, Metals Focus
70
80
90
100
110
120
130
140
Jan-20 Apr-20 Jul-20 Oct-20
Index
Gold Copper Lead Zinc
60
70
80
90
100
110
Jan-20 Apr-20 Jul-20 Oct-20
Index
AUD RUB MXN PEN
18
-
Higher prices will drive by-product credits up
19Source: Metals Focus – Silver Mine Cost Service
-20-15-10
-505
101520253035
Q1.12 Q1.13 Q1.14 Q1.15 Q1.16 Q1.17 Q1.18 Q1.19 Q1.20
$/oz
Gold Zinc Lead Copper AISC Silver Price Pre-credit Cost
CostsBy-product
creditsAverage costs for primary silver mines were lower q/q in Q2.20 due to higher cost operations in South America being closed, the upward pressure on costs of these mines returning to production will be offset by higher by-product credits in H2.20.
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20
Global demand summary
Source: Metals Focus
993
931
-67.9
-44.4
-4.5 +5.0
+49.8
840
860
880
900
920
940
960
980
1,000
2019 Jewelry &Silverware
Industrial Photography Producer De-Hedging
PhysicalInvestment
2020E
Moz
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21
Industrial demand, sharp H1 decline, but improved H2 trend
Source: Metals Focus
0
100
200
300
400
500
600
2010 2012 2014 2016 2018 2020E
Moz Electrical & Electronics Brazing Alloys Other Industrial
-
Source: Metals Focus, various 22
Photovoltaics: success in market diversity
201559GW,
8 GW-Scale countries
2019115GW,
16 GW-Scale countries
201017GW,
2 GW-Scale countries
-
Source: Metals Focus23
Jewelry & silverware exposed to weakness in India
0
50
100
150
200
250
300
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020F
Other jewelry India jewelry Other silverware India silverware
Moz
-
24
Bar and coin investment enjoys a strong recovery
0
50
100
150
200
250
300
350
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020E
Other Europe India US
Moz
Source: Metals Focus
-
25
Fifth uninterrupted surplus in 2020 of 31.5Moz, vs. 26Moz in 2019
Surplus
Deficit
Source: Metals Focus
10
15
20
25
30
35
40
-60
-40
-20
0
20
40
60
80
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020E
US$/ozMoz
Balance Silver Price
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26
Silver bullion stocks continue to rise
Source: Bloomberg, LBMA
LBMA
COMEX
0200400600800
1,0001,200
Jul-16 Jan-17 Jul-17 Jan-18 Jul-18 Jan-19 Jul-19 Jan-20 Jul-20
Moz
0
100
200
300
400
Jan-15 Jan-16 Jan-17 Jan-18 Jan-19 Jan-20
Moz
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27
Gold Forecast, 2020: $1,780, +28%
Source: Metals Focus
1,400
1,600
1,800
2,000
2,200
2,400
Apr-20 Jul-20 Oct-20 Jan-21 Apr-21 Jul-21 Oct-21
Spot/Average High Low
-
28
Silver Forecast, 2020: $20.60, +27%
Source: Metals Focus
10
15
20
25
30
35
40
Apr-20 Jul-20 Oct-20 Jan-21 Apr-21 Jul-21 Oct-21
Spot/Average High Low
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Disclaimer & Copyright @ Metals Focus Ltd, 2020Although every effort has been made to undertake this work with care and diligence, Metals Focus Ltd cannot guarantee the accuracy of any forecasts or assumptions. Nothing contained in this presentation constitutes an offer to buy or sell securities or commodities and nor does it constitute advice in relation to the buying or selling of investments. It is published only for informational purposes. Metals Focus Ltd does not accept responsibility for any losses or damages arising directly or indirectly from the use of this presentation.
Slide Number 1Silver now holding in a higher range, despite recent weaknessRelationship with base metals has strengthened recently, but…...the gold-silver dynamic continues to dominateThe gold:silver ratio had fallen noticeablyOverall though, it remains above the long-term averageThe macro environment remains pivotalThe macro environment remains pivotalThe macro environment remains pivotalInvestor positioning constrained by EFP issuesWhat happened to EFPs?Bullion stocks rising, but most cross-border moves reflect EFP dynamicsETP holdings hit record highs, driven by US fundsGlobal supply summaryMined silver production in 2020 lower due to COVIDCOVID disruption peaked in Q2.20Costs declined year-on-year in H1.20FX rates and metal prices push costs lowerHigher prices will drive by-product credits upGlobal demand summaryIndustrial demand, sharp H1 decline, but improved H2 trendPhotovoltaics: success in market diversity Jewelry & silverware exposed to weakness in India Bar and coin investment enjoys a strong recoveryFifth uninterrupted surplus in 2020 of 31.5Moz, vs. 26Moz in 2019Silver bullion stocks continue to riseGold Forecast, 2020: $1,780, +28%Silver Forecast, 2020: $20.60, +27%