Silver’s Surge Loses Momentum Price Dips Slightly As Refineries Boost Production To Lock In Profits

Silver slumped after a week-long, 19 percent rally as producers increased their output to lock in prices close to nine-year highs.

“We’re boosting production close to capacity,” said Martin Boehm, commercial manager at Handy and Harmon Refining Group Inc., at Attleboro, Mass., the largest silver refinery in North America. The company expects to produce 62 million ounces this year, up 11 percent from normal levels.

Prices surged 8 percent in the past two days after billionaire Warren Buffett’s investment fund, Berkshire Hathaway Inc., said it bought 129.7 million ounces of silver, equal to about a fifth of known world stockpiles.

Silver for March delivery fell 22 cents, or 3 percent, to $7.04 an ounce on the Comex division of the New York Mercantile Exchange. Prices rose to their highest since July 1988 Thursday.

Berkshire Hathaway’s holding, built up over the past six months, has made it difficult for other buyers to find enough silver to meet their needs.

Some suppliers are trying to get ingots to warehouses in the U.K., where Buffett is awaiting delivery of about 42 million ounces. The rush to deliver in London has left U.S. stockpiles at 12-year lows.

“We have backlogs” of orders, said Boehm, whose company is owned by Golden West Australia, a holding company with Rothschild Australia as the majority stockholder.

“We are at capacity, or very near it,” he said. “Most refineries are already. For a long time, (the lack of refining capacity) will be the bottleneck.”

The refinery, which takes silver scrap, coins, bullion and other forms of the metal and purifies it, currently has a delay of from 3 weeks to 10 weeks to process silver.

It charges from 20 cents to $1 an ounce plus interest, depending on the purity of the metal, Boehm said.

Handy & Harmon expects silver prices to keep rising, especially after Buffett’s investment was announced.

“Warren Buffett is such a name that he’s like a comet’s tail, he could pull a lot of people in,” Boehm said.

Also contributing to Friday’s decline was slowing demand.

Degussa AG, a German metal company, expects consumer demand to decline because of current high prices.

“We also foresee a decline in the jewelry and silverware business in the next few days,” said Carl Voigt a management board member. “On the customer-base side, we assume that demand from the photo film and electronics industry will be affected.”

The silver producer and maker of such products as silver nitrate, expects silver prices to move into a range of $5 an ounce to $7 an ounce for the rest of the year, Voigt said.