USGS 2022 Report: Silver Reserves And Silver Production
Summary
- Global silver production increased in 2021, primarily coming from Peru.
- Global silver reserves increased in 2021, primarily coming from Peru.
- Declining primary silver supply is being replaced with by-product silver supply.
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Each year, the U.S. Geological Survey publishes a report on world mine production and reserves. As precious metals investors, we are especially interested in the silver segment of this report which gives us extremely valuable information on the supply side of the silver market.
Silver Price
The silver price has underperformed ever since the Federal Reserve started tapering in November 2021. On the silver demand side, the trend has essentially been flat for 10 years according to Statista. In the future though, the new trend of electrification (electric vehicles, 5G, solar panels, green energy) will add to fabrication demand.
Global Silver Demand
When we look at the supply side of the silver market, we observe that most of the silver supply is produced as a by-product from base metal mining. It is expected that silver supply from base metal by-product silver production will increase in the coming years. 31.7% of silver production comes as a by-product of zinc and lead mine supply while 25.3% comes as a by-product of copper production. Thus, 57% of global silver production is a result of copper, zinc and lead production (see figure below from Statista).
Silver Mine Production by Source Metal
Statista reported that silver coming from primary silver miners decreased significantly in 2020 and this trend is going to continue going forward. Primary silver miners have enormous problems with declining ore grades, and this is starting to show up in the numbers. Also, very important to note is that declining primary silver supply only has a minimal effect on the silver price, because most of the supply is coming from base metal by-product (57%).
Silver Production
We are seeing a recovery in demand for base metals this year due to the reopening of the economy. For example, copper has risen 75% from its low in 2020 when it took a big hit after the announcement of the coronavirus outbreak in China. Due to lockdowns, the Chinese tourism sector has completely collapsed, and this has led to a massive trade surplus for China as the services trade deficit has disappeared. All of this extra saved money was used to invest in commodities like copper, nickel, silver, gold, iron ore, and oil.
Copper Price
Although demand for base metals is improving, I don't expect that supply for base metals will be rising that fast because it is very difficult to bring these mines into production as these are very large projects. The grades of these mines are also decreasing going forward. For example, copper supply (and silver by-product supply) is most likely to grow slowly in the coming years (see figure below of Rystad Energy). As a result, silver by-product supply coming from copper mines won't be increasing as much.
Copper Production and Demand
The amount of copper in warehouses has declined sharply, which is evidence that there is not enough copper being supplied to satisfy demand (see chart below from Correlation Economics).
Copper Warehouse Inventory
Silver by-product supply from lead and zinc mines is rising while silver by-product supply from gold is forecasted to decline. According to Barrick Gold's PDAC 2020 presentation, gold supply (and silver by-product supply) will decrease over the coming years.
Gold Supply
The 2022 USGS report shows that silver production and silver reserves have increased (see charts below from USGS). Mexico and Peru are still the two largest silver producers in the world, and Peru is the leader in silver reserves at 120,000 tonnes. Also notable is that Poland's reserves declined from 70,000 to 67,000 tonnes. Total silver reserves increased 6% to 530,000 tonnes. Total silver production increased from 23,500 tonnes/year (2020) to 24,000 tonnes/year (2021), primarily coming from Peru.
World Mine Production and Reserves (USGS) Silver Reserves (USGS)
Let's take a closer look at the 3 largest silver producers: Peru, Mexico and China.
During 2021, we saw that Peru's silver reserves increased 30% year over year to 120,000 tonnes. On the production side, Peru has been doing well since 2013 with base metal mine production rising 30% from 2013 to 2017, but since 2019, we saw mining production decline again (see chart below from Statista). Peru's silver production increased 10% year over year to 3,000 tonnes per year in 2021. The outlook for copper production is positive. According to Fitch Solutions, Peru's copper production will rise 20% yoy thanks to the normalization of activities and production startup at more copper projects.
Base Metal Mining Production in Peru Peru Copper Production
Now, let's take a look at Mexico. Silver production increased slightly year over year to 5,600 tonnes per year in 2021. The chart below from Trading Economics shows how Mexico's overall mining production improved in 2021. Silver reserves were unchanged at 37,000 tonnes.
Mexico Mining Production
The third largest producer of silver is China and we have seen a nice comeback in 2018-2021. Silver production in China comes primarily from by-product of lead and zinc (95%), so we need to take a closer look at base metal mining. Mining production in China increased 7.3 percent in December of 2021 over the same month in the previous year (see chart below from Trading Economics). Silver production for 2021 was slightly higher year over year to 3,400 tonnes per year. Silver reserves were unchanged at 41,000 tonnes.
China Mining Production
Looking at these numbers, base metal mining has been doing very well despite supply chain problems, and a good amount of silver is coming from there as a by-product. Nevertheless, it is a fact that silver reserves and grades are coming down. The decrease in primary silver production is evidence of that. The overall trend is still pointing to increasing silver reserves and silver production, and this should put a lid on the silver price going forward unless silver demand strongly rebounds.
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