This analyst posits that Silver supply will not be adequate when investment demand surges since the 4th largest Silver producer mine supply down 20%, only two mines supply half Of U.S. Silver Production & the global silver scrap supply has plunged from its 2011 high silver - R. Zurrer for Money Talks
Global silver scrap supply fell to its lowest level in 26 years. World silver recycling in 2017 dropped by nearly 50% since its peak in 2011. According to the 2018 World Silver Survey, global silver scrap supply declined to 138 million oz (Moz) compared to 261 Moz in 2011. While the lower silver price is partly responsible for the large drop in silver recycling, there are other market dynamics.
For example, silver recycling from the photography sector has declined since consumption peaked in 1999. The photography industry was using 228 Moz of silver in 1999 compared to the 44 Moz last year. Thus, silver consumption in photography has declined by 80% in nearly two decades… and along with it, a great deal of recycled silver supply.
Furthermore, a lot of silverware was recycled during the period of rising prices (2007-2012). A lot of Millennials who inherited their parent’s (and grandparents) silverware decided it was much easier to pawn it rather than spending a lot of time polishing it for holiday gatherings. Which means, a lot of available stocks of silver scrap have already been recycled.
As we can see in the chart above, even though the $17 silver price in 2017 was four times higher than in 1991 ($3.91), global silver scrap supply is less than it was 26 years ago. Moreover, world silver scrap was over 200 Moz a year (2005-2009) when the average annual price was much less than it was last year.
Now according to the Metal Focus Silver Scrap Report published in 2015, they forecasted the following percentages of silver scrap from the various sectors:
Industry = 60%
Silverware = 16%
Photographic = 12%
Jewelry = 10%
Coin = 2%
While it is well known that the majority of silver scrap comes from recycling of industrial silver waste, due to the industrial sector being the largest user of silver, jewelry only accounts for 10% but is the second largest consumer. For example, the 2018 World Silver Survey reported that the industrial sector consumed nearly 600 Moz of silver in 2017 while jewelry fabricators used 209 Moz. However, silverware and the photographic sectors only consumed 102 Moz, but account for 28% of silver scrap supply.
What this tells us is that owners of silver jewelry are not that motivated to pawn their silver jewelry because there just isn’t enough monetary value. So, a large supply of potential silver scrap will likely never make it to the market, even at much higher prices, due to the relatively small value of silver jewelry held by individuals.
As for gold jewelry, it’s quite the opposite. Nearly 90% of global gold scrap supply comes from recycled gold jewelry. Thus, a significant increase in the gold price would result in higher gold jewelry recycling, whereas a higher silver price would not generate much of an increase in silver jewelry scrap supplies. So, each year about 200 Moz of silver are used in silver jewelry fabrication, but only a small amount is ever recycled.
Lastly, annual gold scrap accounts for 28% of total global gold supply compared to only 14% for the silver market. Even at much higher silver prices, global silver recycling will not be able to supply enough metal when investment demand surges as the broader markets collapse.