Industrial silver fabrication is expected to drop nearly 9% in 2020 due to the effect of COVID-19 on end-use industries, especially in March-April, according to a Nov. 18 report commissioned by the US-based Silver Institute.
"Industrial fabrication ... is forecast to drop by 9% percent this year to 466.5 million oz, a five-year low," according to the report from UK precious metals research firm Metals Focus.
"This reflects the impact of lockdown restrictions, with supply chains heavily disrupted, end-users adopting an increasingly cautious approach to inventory replenishment and factories facing labor supply problems," the report said.
Metals Focus estimates that photovoltaic demand will fall by 11% to about 88 million oz, still a historically high level.
"The use of silver in the automotive sector is seeing a slightly steeper decline, as the estimated 17% drop in global light vehicle production outweighs ongoing gains in the use of silver in each vehicle," Metals Focus said.
"One bright note is that sectors connected to home renovation have often performed better because of the trend towards increased teleworking," they added.
Silver mine production is expected to fall 6.3% in 2020 to 780.1 million oz, according to the report.
"This reflects COVID-19 lockdowns implemented by several major silver producers during the first half of the year, which required mines to temporarily halt production. This led to lower output from Mexico, Peru and China," Metals Focus analysts said.
The last countrywide COVID-19 restrictions on mining in Mexico were lifted at the end of May and most mines have now returned to full production rates. "However, there is a continued risk of localized outbreaks of the virus, which may impact output from individual operations in the future," they added.
By contrast, physical investment demand is expected to surge 27% percent to 236.8 million oz in 2020 -- a five-year high.
The largest retail market for bars and coins, the US, will lead the way with a projected 62% gain, according to Metals Focus.
This reflects the impact of increased price volatility and healthy price expectations. The second largest market, India, however, has experienced a markedly weaker second half with outright liquidations, resulting in an estimated 20% decline for the full-year total, they said.
The most significant driver in silver investment demand this year has been the strength of silver-backed exchange-traded product demand, with yearly gains through Nov. 13 reaching 326 million oz.
"As a result, global holdings have for the first time comfortably surpassed 1 billion oz, achieving a new record high of 1.062 billion oz," Metals Focus analysts said, adding that holdings this year are expected to rise by about 350 million oz compared with an increase of 81.7 million oz in 2019.
Even so, the global silver market is forecast to end 2020 with another physical surplus of nearly 31.5 million oz, the highest in three years, Metals Focus analysts said.
That compares with a surplus of 26 million oz in 2019 and represents the fifth uninterrupted annual surplus in the silver market. "Even so, the strength of global silver investment is expected to continue comfortably absorbing this surplus," they said.
