Gains Will Be Broad-based, With Growth Expected From Most Key Demand Components

The outlook for silver demand is exceptionally promising for 2022, with global silver demand forecast to rise to a record high of 1.112 billion ounces (Boz) in 2022. The increase will be driven by record silver industrial fabrication, which is forecast to improve by 5 percent, as silver’s use expands in both traditional and critical green technologies. Physical silver investment demand (consisting of silver bar and bullion coin purchases) is projected to jump 13 percent in 2022, achieving a 7-year high. Silver’s use in jewelry and silverware is also expected to strengthen in 2022 by 11 percent and 21 percent, respectively.

Macroeconomic and geopolitical conditions will generally support precious metals prices in the first half of this year. However, once the pace of U.S. policy rate hikes becomes more evident, the price outlook becomes more challenging.

The Silver Institute is pleased to provide the following insights on the major components of the 2022 silver market.

Silver Demand

In 2022 the silver market will build on the strong foundation set last year, when silver demand gained in all key sectors. Continuing the trend from 2021, this year’s upside will be broad-based, with gains expected from most key demand components. The global total for 2022 is forecast to achieve a new record high, increasing by 8 percent to 1.112 Boz.

Silver industrial offtake (accounting for more than half of total silver demand) is projected to strengthen further, establishing a new record high in 2022. Ongoing improvements in the global economy will give silver industrial applications an additional boost, mitigating near-term headwinds from supply chain bottlenecks and the challenges in certain regions from the ongoing COVID pandemic.

The outlook for silver’s use in the photovoltaic (PV) industry remains bright. Government commitments to carbon neutrality have resulted in a rapid expansion of green energy projects. As a result, even with ongoing efforts to reduce silver loadings, record PV installations are expected to lift silver demand in this segment to an all-time high in 2022.

Despite the prolonged worldwide chip shortage, the outlook for silver demand in automotive and 5G related applications remains robust this year. The former has been underpinned by increasing vehicle electrification, which leads to higher silver loadings per vehicle. Meanwhile, the latter has been assisted by the acceleration of building infrastructure to support 5G networks and strong demand from mobile devices. Moreover, as chip manufacturing bottlenecks are forecast to ease gradually in 2022, the rise in silver demand for these and other electrical and electronic applications is expected to expand.

Jewelry demand is forecast to strengthen by 11 percent this year. India remains the driving force, assisted by improving consumer sentiment. Even though the Omicron wave affected Indian demand in early 2022, an expected easing of COVID-19 restrictions and efforts by jewelry retailers to increasingly push silver to urban consumers will favor jewelry sales across India. In the U.S., following a significant rebound in 2021, jewelry sales expansion is expected to continue, albeit at a slower pace. Silverware fabrication is forecast to expand by 21 percent this year; again, India will account for the bulk of the increase for silverware in line with jewelry.

Silver Supply & Market Deficit

Total global silver supply is projected to rise by 7 percent to 1.092 Boz in 2022. The main contributor is silver mine production, which is forecast to grow 7 percent to a six-year high this year. This will be driven by higher output from primary silver mines, particularly from several large existing operations and supported by large new projects coming online.

The increase in silver recycling should be more modest in 2022, with volumes likely to advance by 3 percent, with the rise entirely due to higher industrial recycling. All other areas are expected to record lower volumes, as reduced distress selling weighs on jewelry and silverware scrap.

After shifting to a market deficit (total supply less total demand) in 2021 for the first time in six years, the silver market is expected to record a supply shortfall of 20 million ounces this year. However, the projected deficit is relatively modest in absolute terms.

Silver Physical Investment, Exchange-Traded Products & Price

Silver physical investment should enjoy double-digit gains in 2022 to hit a seven-year high. As the year advances, ongoing macroeconomic uncertainties, and elevated inflationary pressure, should encourage retail investors to seek physical silver for wealth preservation. Accordingly, profit-taking is likely to remain muted. Physical silver investment in India is also expected to strengthen on the back of improving economic conditions and positive price expectations.

Silver exchange-traded products (ETPs) saw a 6 percent rise to 1.132 Boz last year. So far this year, silver ETP holdings are little changed on year-end 2021 and remain close to record highs, a position which should be maintained for much of this year.

Early 2022 has seen GDP growth downgraded for several major economies, along with rising financial market volatility. This points to an increasing risk that the speed of the U.S. interest rate hiking cycle could turn out to be slower than current market expectations have allowed. As a result, silver prices should initially benefit from fresh investor interest in precious metals. Silver’s high beta should also see it outperform gold, with the gold:silver ratio projected to retreat below 70 by year’s end.

Overall, the 2022 annual average silver price (basis the LBMA silver price) is forecast to be $24.80, 1 percent lower than 2021’s average price of $25.14. Even so, it will still represent a historically high annual average.


Original source: The Silver Institute