The global silver market is set for an annual physical deficit of 1,328 mt in 2015, as weak supply outweighs an annual fall in demand, the latest silver survey by Gold Fields Mineral Service showed Wednesday.
The deficit will be the third consecutive year the metal has been in physical shortfall, following deficits of 1,082 mt in 2014 and 3,368.5 mt in 2013.
Yet net outflows from exchange-traded fund silver holdings and exchange inventories on a year-to-date basis means the net deficit is expected to be only 662.5 mt, according to the survey.
Although deficits do not necessarily influence prices in the near term, GFMS said that "multiple years of annual deficits can begin to apply upward pressure to prices in subsequent periods."
It was a view mirrored by Commerzbank, which said in a note Wednesday that the deficit "should lend support to the silver price in the medium to long term."
Silver supply is forecast to fall to 31,551.4 mt in 2015, down 3% year on year, driven by flat mine production, a 5% drop in scrap return and net de-hedging, the survey said.
Scrap supply is expected to fall for the fourth consecutive year, continuing a downward trend that began after annual average prices and scrap levels peaked in 2011, GFMS said.
Total physical silver demand in 2015 is forecast to contract 2.5% to 32,879.5 mt, driven primarily by a drop in electronics demand, while jewellery fabrication is also set to fall.
Silver coin demand is forecast to increase 21% in 2015 to a record high of 4,040 mt and should account for 12% of physical demand this year, up from 10% in 2014 and just 4% 10 years ago.
GFMS said the slide in silver prices in July and August to six-year lows triggered a surge in buying in the third quarter, especially North America where coin sales were up 103%.
"This largely unexpected surge resulted in an unprecedented shortage of current year silver bullion coins among the world's largest sovereign mints," GFMS said.
GFMS forecasts silver prices to average $15.51/oz in 2015.
The London Bullion Market Association Silver Price settled at $14.25/oz Tuesday, down $0.11/oz on the day.
