Silver supply issues grow as Net Zero goals drive further demand

Signs are emerging that the silver sector is facing a shake-up — and one that could play into the hands of primary producers of the metal.

This is coming at a time when the silver sector has sprung back to life after years of dwelling in the doldrums — and all the four leading contenders have, one, advanced projects; and, two, will be primary producers of the metal rather than by-product suppliers.

That latter factor is important if, as seems increasingly likely, base metals output may find some short-term challenges — and that may mean their silver by-product output could be affected.

China is cutting off commodity supplies to the world

First, the geopolitical factor.

China (when you include what transits through Hong Kong) accounts for 21% of silver exports.

In the past few weeks China — the world’s biggest producer of phosphate — has banned all exports through to the end of 2022, causing a major headache for fertiliser manufacturers around the world (and for farmers).

Beijing has signalled it wants to keep its phosphate output for domestic use.

In late September, China ordered closed 25 magnesium plants and told another five to cut output by 50% due to the acute power shortages in the country.

China produces 87% of the world’s magnesium metal.

By the end of November, as a result, European magnesium stocks are expected to be exhausted — leaving the EU’s aluminium and auto industries with no supplies.

But there is another perspective to this: China has already used bans and quotas to restrict the supply of rare earths leaving the country, leaving the industrialised world in a precarious position.

Shortages of phosphate and magnesium will have the same effect.

The Net Zero target relies on silver

The great Net Zero 2050 carbon emission dream relies on silver — and also on solar panels, for which silver is a vital component.

Can we go on relying on China for silver itself and/or the solar panels vital to the renewables quest?

It is an interesting facet of the China silver story that, while the country is so dominant in supply, it does not have a mining capability matching that dominance.

A Canadian company actually mining silver in China, Silvercorp Metals Inc, explains that, despite being the third largest silver producing country, China is dependent on large numbers of small mines rather than any globally significant ones

It has none of the top 10 silver mines in the world, nor do any of the top 20 miners operate there

Primary producers in safe jurisdictions could be in the box seat

There are other issues clouding the silver outlook.

China’s falling demand for copper, zinc and lead could ricochet through to the silver sector.

In 2020, only 27% of the world’s silver supply came from primary producers of the metal.

Copper miners provided 25% of the world’s silver, zinc and leader producers another 32%.

(Gold miners accounted for 16% of global silver production — but that is not expected to contract.)

Another point: the average age of the top 10 primary silver mines in the world is 29.5 years.

Also, a high proportion of silver comes from countries that are outside what could be regarded as tier-one jurisdictions.

In the top 10 are: Mexico, Peru, China, Russia and Bolivia.

Toronto Venture Exchange-listed Blackrock Silver — which is hunting silver in Nevada — points out in a new presentation that Mexico, Chile and Peru rank among the top five countries for the number of mining disputes.