JJP - USGS 2023 Report: Silver Reserves And Silver Production

Summary

• USGS report shows that global silver reserves and silver production increased.
• Largest silver reserve increase has been reported from China.
• Mexico is still the leader in silver production.

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.

The silver price is rebounding on stronger demand due to the new trend of electrification (electric vehicles, 5G, solar panels, green energy). We are also seeing a recovery in demand for base metals this year due to the reopening of China. According to Statista, demand for 2022 was 1.1 billion ounces.

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. 32.2% of silver production comes as a by-product of zinc and lead mine supply, while 26.5% comes as a by-product of copper production. Thus, 59% of global silver production is a result of copper, zinc and lead production (see figure below from Statista ).

Statista reported that silver production rebounded in 2021. Despite falling silver grades, primary silver miners managed to increase production in 2021.

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 is 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.

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 Correlationeconomics ).

Silver by-product supply from lead and zinc mines is rising while silver by-product supply from gold is forecasted to rise as well. According to GlobalData, gold supply (and silver by-product supply) will increase over the coming years.

The 2023 USGS report shows increasing silver production and silver reserves (see charts below from USGS ). Mexico, China and Peru are still the largest silver producers in the world and Peru is the leader in silver reserves. However, Peru's silver reserves declined from 120,000 to 98,000 tonnes. Also notable is that China's reserves increased from 41,000 to 71,000 tonnes. Total silver reserves increased 3% to 549,700 tonnes. Total silver production increased from 25,000 tonnes/year (2021) to 26,000 tonnes/year (2022). When we extrapolate the charts we can estimate that silver will be depleted in about 20 years if not sooner as the average mine life of a silver mine is currently only 10 years.

Let's take a closer look at the 3 largest silver producers: Peru, Mexico and China.

During 2022, we saw that Peru's silver reserves have declined 20% year over year to 98,000 tonnes. On the base metal production side, Peru recorded an all-time high of 4.36 million metric tonnes in 2021 (see chart below from Statista ). Peru's silver production decreased 5% year over year to 3,100 tonnes per year in 2022. Peru's copper production rose to a new high of 224,976 tonnes in November 2022. The outlook however is muted as social conflicts in various regions put the progress of important projects and mines on hold. The Las Bambas mine (2% of global copper production) has been temporarily closed as of February 2023.

Now let's take a look at Mexico. Silver production increased 3% year over year to 6,300 tonnes per year in 2022. The chart below from Trading Economics shows how Mexico's overall mining production improved in 2022. Silver reserves were unchanged at 37,000 tonnes.

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 6% in November of 2022 over the same month in the previous year (see chart below from Trading Economics ). Silver production for 2022 was up 3% year over year to 3600 tonnes per year. Silver reserves were up 70% to 71,000 tonnes.

Looking at these numbers, base metal mining has been doing very well and a good amount of silver is coming from there as a by-product. Even though silver reserves and grades are coming down, primary silver mines managed to increase production. The overall trend is pointing to stable silver reserves and increasing silver production. This should put a lid on the silver price going forward, unless silver demand outpaces supply.

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