The Silver Thread

Thanks, AFB... excerpts:



"Despite all these bearish factors in 2001, the silver "deficit" (the difference between silver scrap and mine supply and silver demand) remained large in 2001, at about 70 million ounces. This deficit was filled almost entirely, according to GFMS, through disposals of 59 million ounces by the Chinese central bank from its silver inventory that was built up before Chinese silver markets were opened in 1999. For the third consecutive year since this disinvestment began in 1999, the enormous Chinese silver exports had a major negative effect on the silver price. In February 2002, Ross Beaty led a Silver Institute delegation to China to investigate Chinese silver inventories and sales intentions. The mission was very productive and established excellent contacts with all major players involved in the Chinese silver market. The mission concluded that there is great potential for China to dramatically increase its domestic silver demand, and thus change from being a large silver exporter to a net importer of silver in the near term. The Silver Institute is now embarking on a major initiative to assist this, for the benefit of all silver producers including China.

For 2002, silver demand is projected to increase, as industrial production grows, industrial re-stocking occurs and investment demand improves. This has already been seen so far in the year, with the silver price now 15 percent higher than its low in November 2001. Silver supply is projected to be static or lower in 2002, with mine supply decreasing slightly as a result of no new silver mines coming on-stream and lower by-product silver production due to reduced base metal production. As a result, the silver deficit will likely increase substantially this year, aboveground silver inventories will reduce further and the silver price will likely trend higher through the year. Any reduction in Chinese sales, pronounced weakness in the US dollar or increase in investment demand should enhance this trend.