The mechanics of market supply and demand can be stable, predictable forces. Not so with the world silver market.
The New-York based CPM Group Ltd. released its annual silver survey Tuesday. For seven years, the world has had more demand for silver than mines produced, and for nearly each of those years, groups like CPM have cautiously predicted a steady increase in the price.
Beyond a brief flirtation with silver at more than $6 an ounce in May 1995, the industrial metal has bounced around near $5 an ounce for most of the decade.
The price makes a critical difference for Inland Northwest mining companies such as Coeur d’Alene Mines Corp. - which sponsors the CPM Group survey and Hecla Mining Co.
For instance, every dime up or down in the price of silver translates into $600,000 in pretax earnings for Hecla, said Vicki Veltkamp, manager of corporate communications.
For 1997, the CPM Group again predicts that the users of silver will want more than the companies that make it produce. The confounding factor has been an unknown amount of existing silver sitting in warehouses and stockpiles around the globe.
Whether in coin or bullion form, nearly 1.5 billion ounces of silver has been waiting to enter the silver market, the survey said. With so much available silver out there, the market hasn’t faced the natural demand pressures.
In response, prices have lagged, and have been pushed down further by futures traders who bet the price would drop.
The good news, according to CPM Group, is that those stores of silver in the wings have been whittled down significantly.
“One critical question for the silver market is how much silver remains in inventories,” said Joseph Rosta, head of research for CPM, in a statement. “The key to understanding the silver market is that there was a massive amount of silver in existence prior to 1990, and this has been slowly worked down.”
For the eighth year, demand will outstrip supply. But few are willing to say that translates into higher silver prices, said Tony Ebersole, director of investor relations for Coeur d’Alene Mines.
The survey, unlike last year, doesn’t lay out a trading range for silver. But it does predict demand will rise by 2.8 percent. Despite a predicted 9.4 percent rise in silver supply, the deficit will remain.
The outlook for all four operating Silver Valley mines appears to be optimistic. The Sunshine Mine continues its aggressive expansion. Hecla’s Lucky Friday mine has a promising expansion progressing nicely. Coeur’s Galena and Coeur mine operated last year at record low costs.