silver boom...could be a while yet

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    UPDATE - Silver supply deficit shrank in '02 as demand fell
    Thursday May 8, 12:15 pm ET
    By Alden Bentley

    (adds details, quotes)
    NEW YORK, May 8 (Reuters) - Drooping demand for fabricated silver helped offset a slight reduction of silver mine production in 2002, cutting the structural deficit in the silver market by 30 percent last year, according to a report released Thursday by the Silver Institute.


    Even with the market more in balance, silver prices moved up 5 percent last year, and should rise again in 2003, according to The World Silver Survey 2003, compiled for the Washington D.C.-based Silver Institute by research firm Gold Fields Mineral Services of London.

    "It's been a market which has basically been pretty much in balance at the $4.60-type of price level, which is what it averaged last year," Philip Klapwijk, managing director at GFMS, told Reuters.

    "It received a small kicker from gold last year and continued to do so this year, although you are not seeing the more serious investment money that to some extent has come into gold," Klapwijk said in an interview.

    Silver purchased for industrial uses, photography, jewelry and coins exceeded the supply from silver mines and scrap recycling by 67.4 million ounces in 2002, compared to a 96.6 million ounce deficit the previous year. It was the fourteenth consecutive year of shortage in conventional supply.

    Silver mine output declined to 585.9 million ounces from 589.2 million in 2001. Sharp declines were seen in the United States and Chile, largely due to lower by-product silver production at copper mines.

    "It appears silver output will fall again in 2003 as base metals producers are forecast to further scale back their operations and little new additional capacity is scheduled to come on stream," the report said.

    The drop in total fabrication demand to 838.2 million ounces from 868.5 million ounces can be attributed to a 9 percent drop in jewelry and silverware offtake, due to a slump in Indian demand. Excluding India, total silver fabrication rose 1 percent last year.

    There was less government selling of silver, to plug the supply shortfall. Official silver sales from China fell to 51 million ounces from 68 million in 2001, the report said. Sales of surplus government silver by China have been a weight on silver for several years.

    "There was less of a call on bullion stocks than there has been. The deficit is far smaller than it has been over the past 10 years," said Klapwijk.

    He said a rise in silver prices might attract more Chinese selling and estimated that if the current pace of Chinese sales continues, government stocks could be exhausted by 2006.

    Silver will average $4.78 an ounce in 2003, predicted Klapwijk.

    "If you take the $4.30-$5.00 range, which is really where silver has been since about May 2000, I don't really see prices escaping that range," he said. "I don't think it's sustainable at much higher prices because I don't think the fabrication demand is going to come back strongly enough this year."

    Spot silver (XAG=) on Thursday traded at $4.79/81 an ounce.

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