Silver analysis and forecast for Q3 2015

Aug 4, 2015 - 10:14 AM GMT
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Each Quarter FastMarkets and Sucden Financial produce an analysis and forecast report on the Precious and Base Metals. Below is the Silver report, to read the full report covering all the metals in pdf form click here.

Subscribers have access to these reports before they are published through the research tab in FastMarkets Professional.

Silver – Challenging Environment

Summary

Silver is about unchanged so far this year but weakness returned in mid-May, with prices down 5.6 percent in the second quarter. We attribute this to aggressive selling in the futures markets and lower physical investment demand. While the likelihood of a short-covering rally has increased in the short term, we believe that prices will remain weak, reflecting a challenging environment, including a higher dollar, rising US real interest rates and stronger equities.

Silver Q3 2015 - historical price chart 2012-2015

Silver Q3 2015 - supply demand balance

Overall trend – On the supply side, mine output, which accounts for about 80 percent of total silver supply, could continue to rise this year after a 43-million-ounce or five-percent increase last year, which reflects lower primary producers’ total cash costs. On the demand side, silver industrial demand, which accounts for 50 percent of demand, should grow at a moderate pace, reflecting higher industrial output growth, especially in the emerging markets where most silver is consumed. An important part of this demand could come from solar panels, which is set to continue to rise at a solid pace, particularly in China and India. Given the current extreme short spec positioning, there could be a rally in the short term although we expect prices to remain weak, heavily driven by lower investment demand, most notably physical bar investment demand, in part due to macro headwinds stemming from the tightening of the US monetary policy later this year.

Silver Q3 2015 - ETF holdings and spot price 2012 - 2015

ETF investors bought 157 tonnes of silver in the second quarter, up from 65 tonnes in the first. Although ETF holdings have been held by private investors with large risk appetite, we hold the view net outflows could emerge over the rest of the year should their bullish thesis fail to materialise.

Silver Q3 2015 - Commitment of Traders Spec positioning on COMEX

Given that money managers have reached an extreme short positioning, a short-covering rally could occur in the near term although we believe that the net spec length will remain low in the third quarter in part due to long liquidation.