Silver's Tarnished Lining

Robust demand for copper and lead will erode the precious commodity's scarcity value.

Silver has been getting a bit of polish of late.

Almost five years after it reached a 31-year peak of $48.44 an ounce in April 2011, the poor man's gold looks to be recovering from its long hangover, with a 13 percent gain this month.

Aside from the usual reasons about low interest rates spurring demand for precious metals and rising bullish bets from investors, there's another wind at silver's back: Miners are producing less of it.

Silver is somewhat unusual among major commodities in that no one is really set on mining the stuff. It occurs naturally in ores with copper, lead and gold, so is produced mostly as a byproduct of other metals. Even Mexico City-based Fresnillo, the world's biggest silver producer, often makes more money selling gold.

All That Glisters

The world's biggest silver miner, Fresnillo, often makes more money from selling gold

Source: Bloomberg

Whereas most commodities have a fairly stable leader board of major producers, that's not the case with silver. Indeed, there's not been a year since 2011 when the rankings of the top five producers stayed the same. BHP Billiton, the biggest miner of the metal as recently as 2012, has all but ceased production after spinning off its Cannington mine as part of new venture South32.

Disorderly Conduct

Rankings of the world's biggest silver miners, by year

Source: Bloomberg

Note: Glencore figures include numbers for Xstrata prior to 2013. Fiscal years are for the 12 months through December, except for BHP Billiton, which is 12 months through June.

That's been a problem for silver over the past decade as a commodities boom has sparked extra production of the more prized metals it occurs alongside. If KGHM has seen good prospects for copper, or Goldcorp has thought the yellow metal was about to soar, they've generally ended up with more silver than they planned and have had to dump it on the market, depressing prices.

Now that a more sour picture for commodities is spreading, that's set to change. Mined production of silver will fall 5 percent this year, according to the Silver Institute, an industry body, and decline further through 2019.


Silver mine production is set to fall this year for the first time since 2002

Source: Bloomberg Intelligence, GFMS/Thomson Reuters

Less being more when it comes to commodities, that's good news for silver bulls. A word of caution, though: Whereas producers of copper, gold or iron ore tend to trim output plans according to the direction they see supply heading, few are so solicitous about silver. Should demand for other metals continue to pick up, don't expect silver to remain so scarce.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

    To contact the author of this story:
    David Fickling in Sydney at

    To contact the editor responsible for this story:
    Katrina Nicholas at

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