Average silver prices in 2014 are expected to slip to around $20.440/oz from the 2013 average of $23.750/oz because of rising supply and weaker investment demand, analysts with the New York-based CPM Group said Tuesday.
"Silver prices are expected to consolidate this year, with limited downside potential," CPM analysts said in their annual Silver Yearbook 2014 report. "The sharp decline in silver prices during 2013 was one of the primary factors that helped drive demand in the price-sensitive jewelry sector higher.
"Since silver prices are not expected to shift significantly lower during 2014, the growth in demand for silver in jewelry is expected to be relatively weak in 2014 compared [with] 2013."
Turning to supply/demand fundamentals, CPM analysts said the global silver market likely will end the year with a surplus of nearly 87 million oz, but the expected surplus falls below the surplus of 105 million oz in 2013.
Total supply from mine output, scrap, coin melts, and government sales is expected to total 977.6 million oz in 2014, up slightly from the 971 million oz of last year. Mine output alone is expected to rise 2.9% this year to 762.6 million oz from last year.
Fabrication demand from manufacturers for jewelry, electronics, photographic film, catalysts, solar panels and biocides is expected to total 890.7 million oz in 2014, up 2.9% from the 865.8 million oz seen a year ago, the group said.
"All major sources of demand are forecast to grow during 2014, with the exception of photography," CPM analysts said in the report.
Meanwhile, investment demand from exchange-traded funds and coin and bar collectors tumbled 42% last year to 105.3 million oz, the lowest level of investment since 2008. The drop investment demand was reflected in silver prices, with the annual average price for 2013 falling 24% from 2012 levels.
"The selloff in the silver market during 2013 was a combination of investors becoming disenchanted with silver's inability to break past the highs reached in early 2011 and a recovery in the equity and real estate markets," CPM analysts said.
Investors are forecast to buy 86.9 million oz of silver in 2014, analysts added. "These purchases should prevent prices from declining during 2014, but this level of investment demand may not be strong enough to drive silver prices sharply higher."
Year to date, silver held by exchange-traded funds has already risen 10.8% over last year's levels to 627.4 million oz, with the world's largest silver ETF -- the iShares Silver Trust -- holding 52% of total holdings at 328.1 million oz.
"The first quarter of the calendar year is typically a strong period for precious metals investment demand and prices," CPM analysts noted.
"This year, demand has been helped by the relatively low value of silver, concerns about future economic growth, which is weighing on equities, and international political tensions emitting from Ukraine," analysts said.