Demand for silver has increased rapidly due to growing industrial demand, while mine production has been flat for nearly a decade. According to Metals Focus (a leading independent precious metals research consultancy. With a team spread across eight countries, they are dedicated to providing world-class statistics, analysis and forecasts to the global precious metals market), the trajectory of the silver mining sector is "uncertain".
In 2024, silver mine production increased 2%, breaking a trend of decline. However, production peaked in 2016 at 900 million ounces and has declined by an average of 1.4% annually through 2023.
Reasons for the decline include reserve depletion, mine closures and a 20% drop in ore grades. Although the price of silver has increased significantly, 70% to 80% of the silver mined is produced as a by-product of mining other metals, meaning that silver by-product revenues do not determine the economics of a mining operation.
Industrial silver demand is expected to reach a record high in 2024, exceeding 700 million ounces. Despite the 2% increase in mine production, it will not be enough to meet the growing demand, resulting in a fourth consecutive market deficit.
The mining industry faces an uncertain path to closing the gap between silver supply and demand. Mine production is expected to increase to a peak of 856 million ounces in 2027, but then plateau. Production from existing mines will decline by 2029, making production dependent on new development projects, which face significant challenges.
Metals Focus projects a decline in production in the largest silver producers, such as Mexico, Peru, China, Chile and Bolivia, which together will produce 62% of total supply in 2024. By 2029, production in these countries could fall by 19 million ounces, driven by a 13% decline in Mexican mine output.
While there has been an increase in exploration spending, this will not necessarily translate into more silver. Many primary silver projects in the pipeline require further de-risking to move towards a positive final investment decision. These projects are unlikely to reach production before the end of the decade, so future supply will depend on expansions of existing operations and by-product production at gold and base metal mines. The mining industry will have to rely on depleting surface reserves to cover the shortfall in silver supply in the coming years.
Mike Maharrey, Money Metals