Record high mine production and a slowdown in Chinese consumption saw the silver market deficit reduce by 95 percent in 2014, the Silver Institute, produced by GFMS, said in a report on Wednesday.
The overall deficit fell to just 4.9 million ounces in 2014 from 111.9 million ounces in 2013, according to the report.
Total physical demand fell by four percent at 1.066.7 billion ounces, although jewellery fabrication hit a new record high at 215.2 million ounces, owing largely to price declines and strong Indian demand.
India’s demand for jewellery surged by 47 percent to 62.2 million ounces, the report said, which was attributed largely to lower prices over the course of the year.
Silver prices began the year at $19.47 per ounce before dropping 20 percent to close the year at $15.70.
India’s increase in demand sees it surpassing China as the world’s largest consumer, where jewellery fabrication dropped 26 percent to 46.7 million ounces.
GFMS attributed the first annual decline in its recorded history to a softer domestic economy and a lack of confidence in the silver price outlook.
“Despite the Chinese economy growing at a reported 7.4 percent in 2014, the true impact on the ground failed to reflect this robust performance,” the report said.
“Consumers were less inclined to spend as a result, with gold, silver, and platinum jewellery all recording annual declines as sentiment became cautious,” it added.
In other areas, coin and bar demand was nearly 20 percent lower to 196 million ounces, while industrial demand was fairly flat, albeit with a downside basis, at 594.9 million ounces.
Supply to the market reached its highest since 2010 at 1.061.8 billion ounces, equating to more than 33,000 tonnes – this was driven higher by record high mine production at 877.5 million ounces, a five-percent increase.
Scrap supply decreased to 168.5 million ounces, its lowest level in more than a decade, while net producer hedging increased to 15.8 million ounces.
Mine supply is, however, set to decrease in 2015 – new supply from projects is not forecast to be sufficient to replace production losses from aging operations, the report said.
(Editing by Kathleen Retourne)