-- Posted Wednesday, 14 May 2003 | Digg This Article
The silver survey for 2002 was released on Monday April 29, 2003. Before I give my summary, there is a brief three page summary from CPM Group at their web site. The key question CPM asks is "How much silver remains in inventories, as the silver market continues to use more silver each year than is being refined from mine output and scrap. It is clear that the amount of silver that is held in bullion has fallen sharply over the past 13 years."
The report goes on to estimate that the amount of unreported bullion inventories is about 275 million ounces at the end of 2002. The reported inventory according to this latest report is 144.4 million ounces which consists of Comex inventory and what is held by U.S. and Japanese Industry. Therefore the total is estimated to be 419 million ounces. As most will recall this is actually higher than the estimate of 403.7 million shown in last years report.
This is rather upsetting to me from the standpoint that the deficit for 2002 is shown on page 5 of the report and is around 60 million ounces. This is impossible to have a deficit and then show an increase in above ground stocks. In fairness however, I must point out that these are always estimates and the CPM group gives ranges for their numbers. In the 2002 survey, only the midpoint estimate is shown not the range. The range from last years report was between 315 and 500 million ounces.
The silver market contracted last year. Total supply declined by 2.9% and total fabrication demand declined by 3.2%. The jewelry and silverware markets experienced the largest decline. Furthermore, CPM reported that photographic demand dropped slightly. On a worldwide basis over 61 million ounces came to the marketplace. The reason given is that profits were achieved in local currencies.
This report gives some mixed signals. CPM states that it is clear that there has been a larger flow of silver out of old jewelry, silverware, and artwork into refined silver than had been discerned by the market. Photography is showing weakness due to current economic conditions. Another key change in the market is less demand in the jewelry and silverware market and this change has begun. Finally, CPM feels mine production will rise for two reasons. First, when prices rise sufficiently and secondly at by-product operations when the world economy moves into healthy conditions.
To my thinking this is a more bearish report than I anticipated, but other issues are addressed that make an extremely bullish case. CPM clearly points out that the amount of investment funds is enormous compared to the total silver market. Quoting: "The entire amount of silver used in 2002, 784.8 million ounces, was worth $3.6 billion at last year’s average price of $4.60 per ounce. This is very small compared to the trillions of dollars available from investors."
Several times the report discusses strong demand from the retail market for the silver eagle program. However, CPM goes on to say that it is still extremely difficult to invest in physical silver because most banks and brokerage houses try to "dissuade investors from buying silver, and gold."
The Reserve Bank of India is reported to have 67.5 million ounces and according to CPM is the largest remaining government inventory. The Mexican government reports 7 million ounces. The case is also made that China a huge silver coin inventory at one time and even today there is a steady flow of silver from China into India that has the same silver content as old circulating coins. There is no estimate given for the amount of Chinese government inventory.
David Morgan -- May 13, 2003
-- Posted Wednesday, 14 May 2003 | Digg This Article
