Gold has commanded plenty of column inches this year against the backdrop of a rate hike cycle that has absorbed financial markets.

Less is written of its poor cousin silver, which trades at a value around 85 times less than gold.

That means it offers investment potential for people who view gold as a bit of an outlay or like the arbitrage the commodity presents.

It also means few silver mines are, primarily, silver mines. By and large the metal is a significant by-product of production of gold, copper, zinc, lead and more.

That means it’s supply is pretty inelastic when it comes to price signals. Which, ironically could end up being good for silver prices.

Along with its allure as an investment and in jewellery, silver is also heavily industrial, and its most promising growth market is in solar panels.

ANZ’s commodity strategist Daniel Hynes and Soni Kumari say industrial demand, largely from solar, will make up 53% of total demand from 2025.

“This will place increasing pressure on supplies. Growth in mine production is largely beholden to other metals projects for which silver is a by-product,” they said.

“Scrap, which makes up nearly 20% of supply, is also lagging. Above ground inventories remain plentiful but have dropped sharply over the past couple of years.

“We estimate the silver market is entering a period of tightness unseen for decades. This may not be alleviated by higher silver prices.”

 

Solar installations on the rise

Hynes and Kumari note solar installations are on the rise, with the EU expected to install 320GW of solar by 2025 and 600GW by 2030, with China to almost double its capacity from 448GW with an extra 395GW planned by the middle of the decade.

Ironically silver supply lifted 18% as prices tumbled 70% between 2011 and 2016, they noted, but investment hasn’t kept up since.

Production of 842Moz is expected this year. That’s 51Moz lower than the market’s apex in 2016.

“This places a lot of importance on above-ground silver inventories. Volumes held in London Bullion Market Association (LBMA) vaults dropped sharply last year amid the strong rise in demand,” Hynes and Kumari said.

“After peaking around 1,180moz in mid-2021, they fell nearly 30% to 848moz in May 2023.

“We estimate the silver market is entering a period of tightness unseen for decades.

“The market recorded its largest ever deficit in 2022 at 220moz. Even with an increase in supply in coming years, it remains well below the growth in demand from the industrial sector.

“As such, we see increasing pressure on above-ground stocks putting further upward pressure on silver prices.”

Is there much going on in terms of ASX silver mining?

When it comes to larger caps there are a couple of options, outside of stocks where silver is a very small by-product.

South32 (ASX:S32) owns the Cannington mine in Queensland. It reports its production there partly on a zinc equivalent basis, but is also one of the world’s largest producers of silver.

At last notice the mine was expected to produce 11Moz of silver, 102,000t of lead and 60,500t of zinc in FY23.

Meanwhile in Bosnia, Adriatic Metals (ASX:ADT) is up 8.97% YTD as it heads towards production at the Vares project in the Balkan nation.

As of last month 78% of the $182m project’s construction was complete, with two declines developed to 606m and 550m respectively.

Once operational, the silver, zinc, lead, gold and copper mine is expected to produce almost 15Moz a year on a silver equivalent basis.

READ: Trading at an ATH, can Bosnian developer Adriatic Metals walk the walk when its Vares silver mine becomes a producer

 

 

South32 (ASX:S32) and Adriatic Metals (ASX:ADT) share prices today:

 

 

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