What is the silver supply and demand forecast for 2024?

While silver has long been valued as a precious metal, its high reflectivity and very good electrical conductivity have made it indispensable in photovoltaics, as well as electronics and other industrial applications. All told, the Silver Institute expects industrial demand to reach 632 million ounces in 2023 against total demand of 1.14 billion ounces.

The rest of that demand will come from the jewelry and silverware industries, as well as photography and physical investment. With supply set to reach just over 1 billion ounces, a 141 million ounce deficit is anticipated for 2023.

The 2023 silver deficit will be the third in a row, and the Silver Institute doesn’t expect relief any time soon, even with new projects in the works. Those include Aya Gold & Silver’s (TSX:AYA,OTCQX:AYASF) Zgounder mine expansion, which will add about 3 million ounces in 2024 before seeing an increase to 6 million ounces in 2025. Meanwhile, Endeavour Silver (TSX:EDR,NYSE:EXK) is in the process of building its Terronera mine — although it should be complete by the end of 2024, its annual production of 4 million ounces of silver won’t be available until 2025.

DiRienzo also noted that a change in mining laws in Mexico could further challenge activities. Mining concession length has been reduced from 50 to 30 years, and concessions can be canceled if no work is completed within two years.

For his part, Krauth said companies like Aya Gold & Silver, Dolly Varden Silver (TSXV:DV,OTCQX:DOLLF), Summa Silver (TSXV:SSVR,OTCQX:SSVRF) and Blackrock Silver (TSXV:BRC,OTCQX:BKRRF) have produced strong exploration results; however, these ounces aren’t likely to enter the pipeline soon. “The problem is much of the silver being found will not find its way into production for years and, even then, will only partly offset depleting reserves,” he noted.

Protests, particularly in Latin America, could also impact silver supply. Even though it’s slowed, recent unrest in Panama over First Quantum Minerals’ (TSX:FM,OTC Pink:FQVLF) Cobre Panama copper mine highlights just how quickly situations can turn. “It’s difficult to say if this trend will continue as we cannot predict unforeseen disruption. However, this is a risk in silver supply given that just Peru and Chile comprise 18 percent of global silver output,” DiRienzo said.

Krauth shared a similar sentiment. “The largest single event was probably the four month strike at Newmont’s (TSX:NGT,NYSE:NEM) Penasquito mine in Mexico. Although this is primarily a gold mine, it produces an impressive 30 million ounces of silver per year. That doesn’t sound like much compared to 800 million ounces of silver mine supply, but the market is already in a substantial annual deficit position, so this production loss is material.”

What factors will move the silver market in 2024?

Of course, there’s more to the silver market than supply and demand. As gold’s sister metal, silver is affected by many of the same economic and geopolitical factors that move the yellow metal, and interest rates are at the top of the list.

Inflation took off following COVID-19, and the Fed has set a goal of bringing it back down to the 2 percent level. However, given that the latest consumer price index reading came in at 3.1 percent, it’s still far from that target. And in a December 13 statement, Chair Jerome Powell indicated he doesn’t think inflation will get there until 2026.

He also noted that while the Fed is halting rate hikes for the time being, further increases haven’t been taken off the table as the central bank takes a wait-and-see approach. “While we believe our policy rate is likely at or near its peak for this tightening cycle, the economy has surprised forecasters in many ways since the pandemic, and ongoing progress toward our 2 percent inflation objective is not assured. We are prepared to tighten policy further if appropriate; we are committed to achieving a stance of monetary policy that is sufficiently restrictive to bring inflation down to 2 percent over time and to keeping policy restrictive until we are confident inflation is on a path to that objective,” he said.

DiRienzo sees pricing for silver largely being determined by institutional behavior, which will be influenced by what the Fed decides to do in 2024. “The Fed has indicated that it will only reduce rates by around 25 (basis points) in 2024, while the market expects the Fed to adopt a far more dovish interest rate policy next year. However, we believe that the Fed will maintain its more hawkish policy throughout next year, and as the market shifts towards the Fed’s stance this will lead to investor liquidations, which in turn will weigh on silver, sending it toward the US$20 level,” he said.

On a more positive position, Krauth sees the conditions being right for silver to rally in 2024. “One of the most significant (events) for me was when we saw almost the entire US Treasury yield curve peak above 5 percent in mid-October,’ he said. ‘Since then, we’ve had the US Dollar Index peak at 107. Both of these have fallen considerably since, I believe on the market’s view that the Fed has stopped hiking rates, with the expectation that rate cuts will come sometime in 2024.’

He also made a comparison to the gold market, commenting, “As well, since mid-October silver stocks have been outperforming gold stocks — also a bullish sign for the sector. I expect gold to keep making new highs and for silver to continue to rally well into 2024.’ Krauth thinks silver could move close to the US$30 mark in the second half of the year.