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- CRB Fundamentals - 2008 Commodity Articles


Silver is a white, lustrous metallic element that conducts heat and electricity better than any other metal. In ancient times, many silver deposits were on or near the earth's surface. Before 2,500 BC, silver mines were worked in Asia Minor. Around 700 BC, ancient Greeks stamped a turtle on their first silver coins. Silver assumed a key role in the U.S. monetary system in 1792 when Congress based the currency on the silver dollar. However, the U.S. discontinued the use of silver in coinage in 1965. Today Mexico is the only country that uses silver in its circulating coinage.

Silver is the most malleable and ductile of all metals, with the exception of gold. Silver melts at about 962 degrees Celsius and boils at about 2212 degrees Celsius. Silver is not very chemically active, although tarnishing occurs when sulfur and sulfides attack silver, forming silver sulfide on the surface of the metal. Because silver is too soft in its pure form, a hardening agent, usually copper, is mixed into the silver. Copper is usually used as the hardening agent because it does not discolor the silver. The term "sterling silver" refers to silver that contains at least 925 parts of silver per thousand (92.5%) to 75 parts of copper (7.5%).

Silver is usually found combined with other elements in minerals and ores. In the U.S., silver is mined in conjunction with lead, copper, and zinc. In the U.S., Nevada, Idaho, Alaska, and Arizona are the leading silver-producing states. For industrial purposes, silver is used for photography, electrical appliances, glass, and as an antibacterial agent for the health industry.

Silver futures and options are traded on the Comex division of the New York Mercantile Exchange, the Chicago Board of Trade (CBOT), and the London Metal Exchange (LME). Silver futures are traded on the Tokyo Commodity Exchange (TOCOM). The Nymex silver futures contract calls for the delivery of 5,000 troy ounces of silver (0.999 fineness) and is priced in terms of dollars and cents per troy ounce.

Prices - Nymex silver futures prices in 2007 traded sideways to lower into mid-year when they dropped to a 1-1/2 year low. However, silver prices then reversed course and trended higher into the end of the year. Silver prices ended 2007 at $14.920 per ounce, up +15.3% on the year and up an astounding 285% from the 4-year low of $5.495 posted in May 2004. Silver prices continued higher into 2008 and in March 2008 posted a 27-year high of $21.185 per troy ounce. The highest month-end price ever posted for cash silver was about $38 per troy ounce back in January 1980. With the weaker dollar helping to propel prices higher, demand for silver remained strong in 2007. Jewelry demand and industrial demand (especially in China where GDP growth was over 10% again), kept a floor under silver prices in 2007. Silver mining has increased but not by enough to satisfy demand.

Supply - World mine production of silver in 2005, the latest reporting year for the series, rose +2.0% yr/yr to a new record high of 20,200 metric tons, continuing to show some improvement after flat production figures in 2000-03. The world's largest silver producers are Peru with 16% of world production in 2005, Mexico (14%), China (12%), Australia (10%), Chili, (7%), and the U.S. (6%). U.S. production of refined silver in 2007 (through September, annualized) fell by 3.1% to 4,836 metric tons, but remained above the 10-year low of 4,442 metric tons seen in 2004.

Demand - U.S. consumption of silver in 2003, the latest reporting year, fell -1.0% yr/yr to 175.3 million troy ounces. The largest consumption of silver is for photographic materials with 35% of total usage, followed by electrical contacts and conductors (23%), jewelry (9%), coinage (7%), and brazing alloys and solders (5%). The world's largest consuming nation of silver for industrial purposes is the U.S. with 20% of world consumption in 2004, followed by Japan (16%), India (10%), and Italy (7%).

Trade - U.S. exports of refined silver in 2005 (latest available data) fell -21.4% yr/yr to 9.709 million troy ounces, which was less that one tenth of the record high of 99.022 million troy ounces seen in 1997. The major destinations for U.S. silver exports are Canada (38%), Switzerland (29%), and the UK (12%).

U.S. imports of silver ore and concentrates in 2005 (latest available data) fell -80.5% yr/yr to 14,000 troy ounces. U.S. imports of refined silver bullion rose +11.2% yr/yr to 134.387 million troy ounces in 2005. The bulk of those imports came from Mexico (65.908 million troy ounces), Canada (41.474 million troy ounces), and Peru (20.319 million troy ounces).

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