The U.S. Geological Survey (USGS) released their September silver production numbers this week and the results were incredible. Only 82.6 metric tons (mt) of silver were produced domestically in September versus 103 tons during September of last year. This represents a massive decline of 20% and is part of a greater trend of declining silver supply. If we haven't see the bottom in silver yet, these fundamentals factors suggest that we are close. Silver Phoenix has the full article: http://www.silver-phoenix500.com/article/us-silver-production-plunges-20
Interesting article. We need more discussion on recycled silver, mining byproduct silver, and silver mines - both small and large. I also wonder how much investment silver, bars and coins, goes back in as recycled silver. If we should reach peak silver, then investment silver will be the only source of excess demand. That will be the window for playing the GSR.
Also, for more production figures or if you would like to see the production figures of individual miners and their mines, here's a good start point. https://www.silverinstitute.org/site/supply-demand/silver-production/
Why would you expect more production % when the profit margin has dropped? That only happens when somebody wants to force competition out of the market.
Pssht IShares silver fund still holds nearly 10000 tonnes in its vaults. That's 500 times that 20 tonnes production "plunge". Just saying.
This happens in oil, gas and mining of most types. When they get close to or even below the cost of production they ramp up volume as high as possible to increase cash flow to help facilitate debt financing and make interest payments on existing debt. It seems mad but this is what happens until they hit the wall and give up, either mothballing the site or going bankrupt. You see it now especially in shale oil producers (although increasingly in traditional oil and iron too). This production decrease is a sign that a lot of the byproduct producers are giving up, not surprising when you see the year copper, zinc, lead etc. have had. This 20 tons is just for the US and just for one month and it's likely the start of a trend unless there's an immediate uptick in base commodity prices. With the recent junk bond problems they're going to find it difficult to raise cash to keep their mines open at a loss and when they can find it it will be expensive. Obviously the pure silver mines are doing it tougher still, this is the beginning of the squeese. Having said that I wouldn't get too excited yet, silver at $15-17 could bring a lot of metal that's been sat on all last year out of hiding and out of the ETF's for recycling to make it up for a while. It's good news for us though, even a 10% drop in global production over the best year will be a nice slow burn. The question is just whether it means a small increase in price soon to bring recycling and some primary production up to balance it out or whether the price doesn't react much and we end up with a deficit that builds up until it cracks the price wide open later on. The cure for low prices is, as this shows, low prices. I'm a little unhappy though, I've been waiting months to buy some around the end of the year and I think I might have missed the bottom.
By just visiting the website now and then. http://us.ishares.com/product_info/fund/overview/SLV.htm This is the serial numbers list of the bars: https://ebts.jpmorgan.com/metalicsWebApp/ebts_downloads/BONY_SLV.pdf Warning - big file, 9,918.52 tonnes, if all 1000 ounce bars that's 318887 numbers.
I don't get that. If the production cost would match or exceed what they get for it, why would they continue? Exceeding means adding to loss, making it even harder to pay off debt, if any. And doesn't production cost just go up with production? Working an extra hour is being paid an extra hour. A machine that runs an extra hour consumes an extra hour energy. Or a machine that is increased in speed consumes more fuel / electricity / wears more / whatever.
Phrenzy is absolutely correct. The incoming cash flow keeps a company running even if it is losing money. This can only go on for so long though. The companies try to compensate by laying off workers, shutting parts of an operation, etc. Sooner or later they finally sell out or mothball. This has happened before and will happen again. Then when prices recover enough they re-open the mines. During the 90's many silver operations were "moth-balled". Jim
Sorry, but come on, let me "translate" your statement in dollars. "The incoming extra 5 dollars keeps a company running even if it is losing an extra 10 dollars". I don't get that...
It is pretty simple really and i would have thought you understood. That $5 now pays for current debts and the $10 loss can be pushed down the road for quite some time with easy money available to borrow.
Pirocco, It takes a long time for a large company to go bankrupt. I am not saying these mines will all go bankrupt, but they can keep on going for a while as long as new cash is coming in, even if at the end of the year they are losing money. MANY mines have been losing money now for a while but they still carry on. Check out some of the publicly traded companies and you can see many don't have a positive P/E and haven't for a long time. Many of these companies will take on more DEBT to keep going or may try to sell shares, etc, whatever it takes to keep going. That's why many are laying off workers and closing down some parts of their operation. You think the day they start to lose money due to low metal prices they lock the doors and everyone goes home? Jim
Interesting point, phrenzy. Unless I'm missing something, this argument can only be true if the increased volume is cash flow positive. Usually this means revenues must exceed short-term operational costs. In that case we're simply talking about economies of scale, i.e. revenues exceed variable costs, so increased volume helps pay for fixed costs and thus minimise the overall loss. In such a scenario increased production has a positive impact on both, cash flow and P&L, and it would make absolute sense to maximise output. I think the only way increased production can have a positive impact on CF, but a negative one on P&L, is when variable costs exceed revenues, but can be delayed significantly. In the mining industry I suppose this can be achieved in various ways, e.g. by extending machinery service cycles. Anyways, interesting food for thought.
Phrenzy's analysis is 100% correct. The oil industry is a perfect example. They'll churn out as much as they can to maintain liquidity at the expense of profits in the hopes that it can turn around in the near future. When the near future comes and prices are still down they close up shop because the losses mounting are excessive and has levered them out of the game.
Sorry, but again: if production runs at a loss, then any additional production does too, thus the everyday-bills become bigger too, rendering that cash still as insufficient, and not paying everyday bills results in suppliers that cut you off and send costumed people to you in order to make you pay.