The U.S. Geological Survey (USGS) publishes a report every year on world mine production and reserves, which gives valuable insights on the supply side of the silver market.
The report shows the price of the precious white metal has risen 20% since 2019 ever since the Federal Reserve started cutting rates. On the silver supply side, most of the silver is produced as a by-product from base metal mining, which is a new trend. With primary silver production declining, the base metal by-product silver production increased 37.7% of silver production, which comes as a by-product of zinc and lead mine supply, and 23.5% comes from copper production.
The demand for base metals has dipped in 2020 because of a slowdown in the economy. The dip is also attributed to the effects of the U.S. and China trade war, and the outbreak of the deadly coronavirus. In January 2020, after the announcement of the outbreak in China, copper took a big hit with copper traders in China declaring force majeure on lower copper demand. With Asia as the largest consumer of commodities, a decrease in demand for base metals can lead to a decrease in the production of silver as a byproduct of base metal mining.
The decreasing trend of silver coming from primary silver miners was predicted by Statista. It is also significant to note, declining silver supply has little effect on the silver price as most of the supply comes from base metal by-product (74%).
Interestingly, Mexico and Peru are still the two largest silver producers in the world and Peru is the leader in silver reserves. The silver reserves from Peru increased from 110,000 to 120,000 tonnes, and Poland’s reserves decreased from 110,000 to 100,000 tonnes.
In 2019, Peru’s silver reserves rose to an impressive 120,000 tonnes. Even with a mining production decline in 2018, Peru expects its copper production to grow 27% and gold output to expand 12% by 2022. In 2020, it has been projected that 212 million ounces of silver would be produced in Mexican mines. With China as the third-largest producer of silver, a closer look at base metal mining would be interesting.
In conclusion, primary silver mines may face a deteriorating trend in their production profile, and more silver would need to come in as a by-product from base metal mining. Though base metal mining has seen a nice uptrend in 2019, a recession could hit that. The cure to lower silver production is to increase silver prices. However, the current trend is reflecting on rising silver reserves and silver production.