Record industrial demand and resurging investor interest is cutting into a supply surplus, driving the metal into its best start to a year in almost three decades.
With silver being used in everything from solar panels to batteries, manufacturers worldwide will use 15,415 metric tons, 2.5 percent more than in 2011 and reducing the glut by 41 percent to 3,297 tons, Barclays Capital estimates.
Investors may buy 2,000 tons through exchange-traded products, after selling 1,300 tons last year, Morgan Stanley predicts. Prices will average $37.50 an ounce in the fourth quarter, 13 percent more than now, the median estimate in a Bloomberg survey of 13 analysts shows.
This year’s anticipated gains in silver will mean record profit for Coeur d’Alene Mines Corp., analyst estimates compiled by Bloomberg show.
Coeur d’Alene, which gets about 69 percent of its revenue from silver, will report profit of $241.50 million this year, compared with an estimated $120.25 million in 2011, according to the mean of four analysts’ estimates compiled by Bloomberg. Shares of the Idaho company gained 16 percent since the start of January.
Hecla Mining Co., also based in Coeur d’Alene, has been hobbled in its effort to capitalize on the surge by the government-ordered shutdown of its troubled Lucky Friday mine near Mullan, one of the nation’s top silver producers. A series of accidents killed two miners over the last year.
But the smaller U.S. Silver Corp., which operates four silver-lead-copper mines in Shoshone County, has been hiring workers to step up production, mine development and exploration.
Silver rallied 22 percent since closing at an 11-month low in December, entering a bull market on mounting confidence that another global recession will be avoided even as the World Bank and International Monetary Fund cut their growth forecasts. Prices had plunged 44 percent in eight months, making it the most volatile of any metal tracked by Bloomberg, as expansion slowed from Europe to China, crimping demand for commodities.
“Silver got hammered, and now we’re into a phase where it will do quite well,” said Dan Smith, an analyst at Standard Chartered in London, and the second-most accurate price forecaster tracked by Bloomberg Rankings in the past eight quarters. “Appeal comes from its widespread use in both industry and investment. I think it’s relatively cheap.”
The commodity has advanced 19 percent since Dec. 31 to $33.15, the best start to a year since 1983. The Standard & Poor’s GSCI Total Return Index of 24 commodities rose 2.3 percent and the MSCI All-Country World Index of equities 5.6 percent. Treasuries returned 0.3 percent, a Bank of America index shows.
Economies may still pose the biggest threat to the rally. The IMF cut its 2012 forecast on Jan. 24 to 3.3 percent from 4 percent and warned that Europe’s debt crisis threatened to derail the world economy. The World Bank reduced its estimate by the most in three years on Jan. 18, to 2.5 percent from 3.6 percent. Global industrial production will expand 2.3 percent, from 4.9 percent in 2011, Macquarie Group predicts.
The 0.5 percent contraction in the 17-nation euro region seen by the IMF may curb demand for imported goods. Chinese exports rose 13.4 percent in December from a year earlier, the slowest pace since February, according to customs data. The nation imported 235 tons of silver in December, 36 percent less than the average over the past two years, the data show.
“In the face of weak industrial demand, the short-term investment argument is not entirely convincing,” said David Jollie, an analyst at Mitsui & Co. Precious Metals Inc. in London and the most accurate forecaster in the London Bullion Market Association’s 2011 price survey. “It’s much more difficult to get people to invest for the long term in times of economic uncertainty.”
For now, speculators are getting more bullish. Hedge funds and other money managers more than doubled wagers on higher prices this year, Commodity Futures Trading Commission data show.
Fresnillo will report net income of $988.7 million this year, compared with an estimated $945 million in 2011, the mean of six estimates shows. Shares of the Mexico City-based company jumped 14 percent in London this year.
“Silver is a hybrid,” said Bart Melek, the head of commodity strategy at TD Securities Inc. in Toronto and the most accurate forecaster tracked by Bloomberg Rankings in the past eight quarters. “It benefits from being precious. Later on in the year we’re going to see a bit of a recovery in industrial demand.”
The Idaho Statesman contributed.
