Silver News

Silver's Crossroads - Timothy Green reports from Dubai on the London Bullion Association's Conference

Dubai, the trading port at the southern end of the Arabian Gulf, has been a crossroads of the silver trade for nearly forty years. When I first went there in 1967, it was busy handling nearly 80 million ounces dishoarded out of India; in the 1990s it was the entrepot for up to 100 million ounces annually going back into India. So, Dubai was a natural choice for the London Bullion Market Association's first precious metals conference in February. Nearly three hundred delegates from 28 countries, including a large contingent from India, attended.

India featured largely in the discussions, being the world's largest consumer of both silver and gold. As Bombay economist Bhargara Vaidya explained, "India needs around 130 million ounces of silver a year, of which nearly 100 million ounces are imported, and the rest is from recycling. The demand is broadly based, in jewelry gifts, investment, and, increasingly, in industry." With India now enjoying positive growth rates of 3-4 percent annually, expansion in demand is set to continue. However, there are important changes, with silver jewelry consumption declining, as people switch to gold, but the silver gift sector is still growing.

The issue in India, where the rural areas remain the heartlands of silver purchases, especially jewelry, is whether ancient custom will give way to modem consumer tastes. Bombay economist D. R. Pendse told the conference he anticipated little change even in the next fifty years, a forecast echoed by the Reserve Bank of India's G. Mahalingam, who said: "Silver still has appeal for the rural population of farmers and artisans."

"Price stability, however, is a key factor," explained Ishwarlal Jain, a leading manufacturer. "It can make a difference between 75 million ounces or 100 million ounces of silver imports this year."

India is also crucial to continuing photographic demand for silver. In assessing the photographic demand for silver in the digital era, Ryoichiro Kobayashi, Director of Photographic Products at Konica in Japan, said that although demand for film in Europe, Japan and the United States was forecast to decline by 1-4 percent annually between 2000 and 2005, it would be more than compensated for by growth in India, Southeast Asia and China. He reminded delegates that in China the demand for film had risen by 14-22 percent annually for much of the 1990s and this trend would continue. "It will take more than five years before the influence of digital technology impacts negatively on the consumption of conventional film on a world-wide basis." He added, "The fact that world total sales of conventional 35mm cameras and new APS cameras are still increasing supports this view." Similarly, he explained that in photographic papers traditional technology using silver is more appealing to the eye than the digital one with regard to 'sharpness,' 'depth' and 'recordability.' A system to print pictures taken by digital cameras on conventional paper, which uses silver, is already on the market.

In medical imaging, a decline in conventional X-ray film in developed countries would be matched by growth in China and Southeast Asia. Overall, Kobayashi concluded that "the total usage of silver in the industry will show a slight increase or hold level to 2005." Beyond that, he added, "It is unlikely to imagine a large decrease in silver consumption in the photographic industry worldwide, even in the far future."

This forecast Prompted the LBMA's chairman, Martin Stokes of J. P Morgan, to observe, "silver continues to surprise US. It is interesting that the digital impact will not be much."

The tricky issue of silver lease rate was tackled by two speakers, Philip Klapwijk of Gold Fields Mineral Services and Jeffrey Rhodes of Standard Bank, Dubai. Philip Klapwijk drew the comparison between gold, where central banks were the prime lenders into the market, and silver which depended on private stocks. Up to 300 million ounces of silver, one-third of supply, were needed each Year for lending to Producers who hedge, as well as refiners and fabricators, and that could put real pressure On leasing rates, as the market has seen both in 1998 (with Warren Buffett's buying) and again in early 1999. The lesson, said Jeffrey Rhodes, was clear. "While lease rates quickly retreated from those extreme levels (80 percent), the days of a zero silver lease rate have disappeared forever and they have remained stubbornly high in historical terms."

The prospect for silver in the early 21st century was summed up by Jaime Lomelin, President of Industrias Peñoles, who traveled from Mexico to Dubai to present the overview to 2003. Mine production, he forecast, would rise from 550 million ounces in 1999 to 600 million ounces by 2003. Scrap supply could be marginally up to 180 million ounces by 2003, while demand would rise to around 920 million ounces. This means stocks will continue to be run down. What does that mean for the price? In 2003, suggested Jaime Lomelin, the high will be $6 per ounce, the low $5.40, and the average around $5.70.

Just to help demand in the meantime, everyone at the LBMA conference came away With a one-ounce silver medal specially designed and minted for the occasion by the local Emirates refinery - a reminder that Dubai is in the front line of the physical business.

Silver News - April / May 2000