The silver market is expected to record a significant structural deficit for the fourth consecutive year.

The global silver market will record a physical deficit in 2024 for the fourth consecutive year. Record industrial demand and a recovery in jewelry and silverware will lift demand to 1.21 billion ounces in 2024, while mining supply will increase by only 1%. Exchange-traded commodities are on track for their first annual inflows in three years, as expectations of Federal Reserve rate cuts, periods of dollar weakness and falling yields have increased silver's appeal as an investment. These are among the key findings reported by Philip Newman, managing director of Metals Focus, and Sarah Tomlinson, director of mine supply, at the Silver Institute's annual silver industry dinner in New York tonight, which featured historical supply and demand estimates for 2024.

The following are the highlights of his presentation:

Silver prices have experienced a remarkable rally so far in 2024, touching $35 for the first time since 2012. As of November 11, prices are up 29% since the beginning of this year. Setting aside a brief dip to a three-year low of 73, the gold:silver ratio has largely remained between 80 and 90 so far in 2024. 

Global silver demand is expected to rise 1% year-on-year (y/y) to 1.21 billion ounces in 2024, making it the second highest in the Metals Focus series (which begins in 2010). Most silver demand segments are expected to strengthen this year, led by industrial applications. This leaves physical investment as the only key component of demand to register a significant decline.

Industrial demand is forecast to increase by 7% in 2024 to exceed 700 million ounces for the first time on record. Consistent with the past two years, growth in 2024 has been supported by gains from green economy applications, particularly in the photovoltaic (PV) sector. Higher demand is also expected from the automotive sector, as silver benefits from increased vehicle sophistication, the growing electrification of propulsion systems, and continued investments in infrastructure, such as charging stations. While a challenging macroeconomic backdrop has affected consumer electronics sales, the rapid adoption of artificial intelligence technologies has resulted in a growing need for technology upgrades, replacements and investments in new infrastructure, all of which have helped silver demand.

Both jewelry and silverware are expected to grow by 5% in 2024. In each segment, India has been the main contributor to growth, with particularly strong sales between late July and early September, when the cut in import tariffs coincided with a pullback in the dollar price of silver. Jewelry consumption is also expected to grow in the U.S., which also benefits major Asian and European exporters.

Physical investment is forecast to fall 15% to a four-year low of 208Moz in 2024. Losses have been concentrated in the US, where coin and bullion sales are on track for a 40% decline to their lowest level since 2019. This reflects the absence of further shocks during 2024 to date, which has affected retail investment in precious metals in general. Physical investment in Europe has also weakened, but this year's decline has been relatively modest after a steep fall in 2023. In contrast, India is expected to enjoy higher sales of bullion and coins, thanks to bullish price expectations and a cut in import tariffs on silver bullion.

Exchange-traded products are on track for their first annual inflows in three years. Expectations of rate cuts by the Federal Reserve, periods of dollar weakness and falling yields have increased the attractiveness of silver as an investment. Investor interest has also benefited from silver's break in a price range. At the end of October, global holdings were at their highest level since July 2022, up 78 million ounces or 8% from the end of 2023.

In 2024, world mined silver production is estimated to increase by 1% year-on-year to 837Moz. Growth in Mexico, Chile and the United States will outpace lower production in Peru, Argentina and China. Mexico's production is forecast to increase by 10Moz, equivalent to 5% y-o-y, to 209Moz. This will be driven by higher mill throughput and grade at Pan American Silver's La Colorada operation, following the upgrade of ventilation infrastructure. Production will also be boosted by a recovery in production at Newmont's Peñasquito mine. The average all-in sustaining cost (AISC) for primary silver mines decreased in the first half of 2024. A slowdown in rising input costs was compounded by higher by-product revenues, which helped even high-cost producers in the 90th percentile to post positive margins. Overall, continued high metal prices will offset production costs and higher royalty payments, further reducing AISC.

Recycling is expected to grow by 5% in 2024, reaching the highest level in 12 years. Much of this increase comes from price-sensitive sectors, such as the rise in western silverware waste. Industrial recycling is also increasing slightly, but the growth in this case is largely related to structural factors.

Overall, with slight growth in both demand and supply, the global silver market is forecast to record a physical deficit in 2024 for the fourth consecutive year. This year's deficit of 182 million ounces is little changed from 2023 and remains elevated by historical standards. More importantly, Metals Focus forecasts that this deficit will persist for the foreseeable future.