(Mike Maharrey, Money Metals News Service) Silver demand has been red hot, driven by a rapid increase in industrial offtake. However, mine production has been flat for nearly a decade.
Can silver producers ramp up and meet demand?
According to analysis by Metals Focus, the trajectory of the silver mining sector is “uncertain.”
Based on preliminary data, silver mine output increased by about 2 percent in 2024, breaking a trend of declining silver production.
Is this the start of a new trend? And will it be enough to satisfy the increasing appetite for silver?
Silver mine output peaked in 2016 at 900 million ounces. Up until last year, silver production had dropped by an average of 1.4 percent each year. In 2023, mines produced 814 million ounces of silver.
Why the decline?
According to Metals Focus, a combination of reserve depletion, mine closures, and a 20 percent drop in ore grades drove sagging mine output.
At the peak of mine output, the price of silver averaged around $13.30 an ounce. Since 2016, the average price has increased to $20.70 an ounce. Today, the price is well over $31 an ounce.
Why aren’t miners increasing production to cash in on that increase?
Approximately 70–80 percent of silver mined globally is produced as a byproduct of mining other metals, such as copper, lead, and zinc. The share of silver produced by primary silver mines fell from approximately 32 percent pre-2016 to 28 percent in 2023.
As Metals Focus explained, this underscores a fundamental dynamic in the silver mining industry.
“By-product silver revenue does not dictate the economics of an operation, instead mining plans are dependent on the market of the mining industry dominant metal. This means a significant portion of global silver supply is dissociated from silver market fundamentals.”
In effect, rising silver prices don’t motivate copper or zinc miners to produce more silver, meaning the industry is slow to respond to supply constraints.
And there are significant supply constraints, with silver demand rapidly increasing.
Industrial demand is expected to set a record in 2024, topping 700 million ounces. However, although mine output is finally expected to chart a 2 percent increase in 2024, it won’t be enough to offset demand. The market is looking at a fourth straight market deficit.
Can the mining industry close this gap?
Looking ahead, Metals Focus calls the trajectory of mine output “uncertain.”
“Supply will experience staggered growth, rising to a peak of 856Moz in 2027 and plateau thereafter. In contrast, production from currently operating mines is expected to fall by 2029 and so output will become increasingly reliant on the successful commissioning of developing projects. Given the challenges associated with advancing projects through to production, the outlook for silver mine supply is therefore uncertain.”
Metals Focus projects declining output from the world’s biggest silver producers.
Mexico, Peru, China and, to a lesser extent, Chile and Bolivia, produce 62 percent of the total supply in 2024. By 2029, production from the top five producers is forecast to fall by 19 million ounces. This will be driven by a 13 percent decline in Mexican mine output.
There has been an increase in exploration outlays. According to Metals Focus, the average annual sustaining and non-sustaining exploration expenditure by a select group of major silver producers was $400 million. Since 2021, miners have exceeded that average. According to Metals Focus, this highlights “renewed efforts from major silver producers to expand their respective production portfolios.”
However, Metals Focus cautions that exploration expenditures don’t necessarily translate to more silver.
“Looking beyond 2025, there are several primary silver projects in the pipeline, but all require further derisking in order to advance to a final positive investment decision. Taking into account construction timelines and possible delays, it is unlikely many of these projects will reach production before the end of the decade. Therefore, future supply will remain reliant on expansions at existing operations and byproduct production at gold and base metal mines.”
It appears that for the next few years at least, we will have to depend on drawdowns of above-ground stocks to meet the silver supply deficit.
Mike Maharrey is a journalist and market analyst for MoneyMetals.com with over a decade of experience in precious metals. He holds a BS in accounting from the University of Kentucky and a BA in journalism from the University of South Florida.
