The mining and materials equity team at RBC Capital Markets has raised its silver price forecasts by 16% in 2020, 17% in 2021 and 14% in 2022.
RBC now forecasts silver prices will average US$17.76 per oz. this year, US$18.75 per oz. next year, and US$18.50 per oz. in 2021.
Silver is currently at about US$19.36 per oz., up by 53% from mid-March.
The bank credited its higher price forecasts to “a more robust rebound in global industrial production and ongoing strong investment demand.”
RBC is also forecasting physical deficits for the precious metal this year and next year, compared to “modest surpluses previously.”
“We now forecast demand in 2020 down -4% vs. -17% previously,” RBC said in a July 17 research note, adding that it has also “incorporated a material ETF inventory build, resulting in even larger net deficits.”
“While we continue to assume year-on-year declines in global GDP and industrial production (IP), we now think there could be a better outcome than previously expected, reflecting recent strength across industrial sectors in China, supportive global central bank stimulus and apparent rebounds in global PMIs,” the report’s authors state. “As such, our forecasts for industrial and commercial demand have improved.”
“Silver offers many of the same investment qualities as gold even with 50-55% of demand coming from industrial use,” the report continued. “This means it is similarly attractive in the current supportive gold macro environment. Notably, physically-backed silver ETF holdings have risen +140 million ounces over the past three months, and this appears to have continued to support prices in recent weeks. We now add significant ETF build into our demand forecast to reflect likely further investment interest.”
On the supply side, RBC forecasts “declining silver production from primary mines over the coming years.” In addition, it sees “fewer primary silver projects than gold projects that could be developed in the medium term in responses to higher prices.”
While higher prices “could incentivize the restart of several assets that have been idled over the past few years as a result of the weak price environment,” it continued, “this is unlikely to have a material impact on the overall supply picture.” Finally, while by-product silver production “is expected to remain relatively robust, it should be remembered that this supply is price insensitive and is unlikely to respond to stronger silver prices.”
But clearly Covid-19 has had the biggest impact on supply and RBC notes that disruptions from the pandemic “have had an outsized impact on silver vs. gold on a global basis” given “the geographic spread of primary silver production being in the Americas (c. 45%) where more restrictive lockdowns were implemented relative to other jurisdictions.”