After moving higher in the first half of 2002 and reaching over $5.00 per ounce, silver prices spent much of the second half of 2002 trending lower. In October 2002 prices reached close to $4.00 before starting to move higher again. Silver behaves in part like a precious metal in that it tracks gold prices to some extent. Gold prices were able to outperform the silver as gold moved higher. Silver is primarily an industrial metal and sluggish economic growth in the U.S. kept the silver from more closely following the gold market. As economic indicators began to show some improvement in the U.S. economy, silver prices began to move higher in the fourth quarter of 2002.

The U.S. Geological Survey reported that world mine production of silver in 2001 was 18,300 metric tonnes, an increase of 3 percent from 2000. The world's largest producer of silver was Mexico with 2001 production of 2,600 tonnes, an increase of 11 percent from the previous year. The next largest producer was Peru with 2001 output of 2,500 tonnes, an increase of 13 percent from the previous year. Australian production of silver was 2,060 tonnes in 2001, an increase of 20 percent from 2000. The U.S. is also a major producer of silver with 2001 output of 1,800 tonnes, down 3 percent from the previous year. Canada is also a large silver producer with 2001 output of 1,200 tonnes, a decline of 4 percent from the previous year.

World reserves of silver are estimated to be 280,000 tonnes. The estimated reserves are fairly evenly divided between the largest producers. More than two-thirds of the world's silver resources are found with copper, lead and zinc deposits. Silver is also found in gold deposits. It is expected that future production of silver will come as a result of demand for base metals like copper with silver being a byproduct.

Silver is basically an industrial metal with about 28 percent of total silver demand being for photographic applications. The development of digital photography has been considered a threat to the use of silver in photographic film. Digital photography converts images into an electronic form thereby negating the use of silver halide film. Silver has various substitutes in some applications. For mirrors and reflecting surfaces, aluminum and rhodium cane be used as substitutes. Stainless steel is used in place of silver in table flatware. Tantalum is substituted for silver in surgical plates, pins and sutures. As an industrial metal, the use of silver will follow the path of economic growth. The U.S., as well as the global economy, is expected to strengthen into 2003. If that proves to be the case, demand for silver should increase.

In the U.S., the largest silver-producing state is Nevada which produces about a third of U.S. silver. About half of the domestic silver mined is found with precious metal ores. The remaining half is recovered as a byproduct of processing copper, lead and zinc ores. In 2001 there were 22 principal refiners of commercial-grade silver with an estimated output of 2,800 tonnes. About 30 fabricators accounted for more than 90 percent of the silver consumed in arts and industry. Silver finds use in a variety of products such as jewelry and in coins. The largest use is industrial including photographic materials, electric and electronic products, alloys, catalysts and dental amalgam.

U.S. mine production of silver in June 2002 was 111 tonnes. Nevada accounted for 27.9 tonnes while other states such as Arizona and Idaho produced 83.1 tonnes. In the first half of 2002, U.S. mine production of silver was 732 tonnes as Nevada produced 226 tonnes.

The U.S. also imports silver. In the January-May 2002 period, silver bullion imports totaled 1,810 tonnes while for all of 2001 bullion imports totaled 2,940 tonnes. The major suppliers of silver bullion were Mexico, Canada, Peru, Hong Kong, and Chile. Imports of silver ore and concentrates in 2001 were 7.5 tonnes while imports of silver powder were 24.2 tonnes. Imports of silver waste and scrap were 1,110 tonnes.

Futures Markets

Silver futures and options are traded on the New York Mercantile Exchange, COMEX division, the Chicago Board of Trade (CBOT) and the London Metal Exchange (LME). Silver futures are traded on the Tokyo Commodity Exchange (TOCOM).

Excerpted from the CRB Commodity Yearbook. For more information on CRB products click here

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