NATIONALMULTICOMMODITY EXCHANGEOFINDIALIMITED

ReportonSilver

4thFloorH.K.House, B/hJivabhaiChambers,AshramRoad, Ahmedabad,Gujarat380009INDIA Phone:917940086039Fax:917940086040 Email:contact@nmce.comURL:www.nmce.com

Silver

TableofContents

Introduction .................................................................................................................................. 3 Uses ................................................................................................................................................ 3 Supply ............................................................................................................................................ 4 Demand ......................................................................................................................................... 7 ImportExport ............................................................................................................................. 10 SilverPrices ................................................................................................................................. 12

Silver

Introduction Most of the worlds silver is mined in the US, Australia, Mexico, Peru, and Canada. Silveroreismostoftenfoundincombinationwithotherelements,andsilverhasbeen minedandtreasuredlongerthananyoftheotherpreciousmetals.Mexicoistheworlds leadingproducerofsilver,followedbyPeru,Canada,theUnitedStates,andAustralia. The main consumer countries for silver are the United States, which is the worlds largest consumerofsilver,followedbyCanada,Mexico, the United Kingdom,France, Germany,Italy,JapanandIndia.Themainfactorsaffectingthesecountriesdemandfor silver are macro economic factors such as Gross Domestic Product growth, Industrial Production, income levels, and a whole host of other financial macro economic indicators.

Uses

Demand for silver is built on three main pillars; industrial and decorative uses, photographyandjewelry&silverware.Together,thesethreecategoriesrepresentmore than95percentofannualsilverconsumption. Whyisthisindispensablemetalinsuchdemand?Thereasonsaresimple.Silverhasa number of unique properties including its strength, malleability and ductility, its electrical and thermal conductivity, its sensitivity to and high reflectance of light and theabilitytoendureextremetemperatureranges.Silversuniquepropertiesrestrictits substitutioninmostapplications. Silverisusedextensivelyforindustrialpurposesduetoitsuniqueproperties,suchas high electrical and thermal conductivity, malleability, ductility, and its resistance to corrosion.Theelectronicsandphotographyindustriesarethemainconsumersofsilver, assilverisanintegralcomponentinmostelectronicequipment,aswellasfilmandfilm processingchemicals. Industrial uses of silver account for nearly 90% of the total use of silver in recent history, with the remaining 10% being used for coinage and jewelry. Silver is used heavily in the photographic industry in all areas from actual film used in cameras, to plates, sensitized paper, as well as in all photocopying machines and most fax machines.Silverisalsoinhighdemandfrombasicindustry.Almosteveryon/offswitch

Silver used in electrical equipment and appliances uses silver as a component. Silver is also usedinsolderandbrazingalloytojoinmetallicsurfaces,aswellasinelectroplateand sterlingproduction. Silver is also used inthe production of bearings, as electroplated Silver bearings have greater fatigue strength and load carrying capacity than any other type. Silver also facilitatesthejoiningofmaterials(calledbrazing),producingaleakproof,andsmooth, corrosionresistantjointinmanufacturedgoods.Silverisalsousedasacatalystinthe production of formaldehyde, which has production estimated at 15 billion pounds a year. Formaldehyde is an essential ingredient in the production of adhesives, laminates,finishesforpaperandtextiles,surfacecoatings,includingpaints,dinnerware andbuttons,packagingmaterialsandmuchmore.Silverisalsousedintheproduction ofMylarrecordingtapes,whichmakesup100%oftherecordingtapessoldtoday.An estimated23millionouncesofSilverareuseddailyinthecatalyticoxidationprocesses describedabove.

USES
BATTERIES BEARING MEDICALAPPLICATIONS CATALYSISTS COINS ELECTRICAL ELECTRONICS Supply The main supply of silver comes from mine production, scrap operations, and hoarding. Approximately seventy percent of the silver mined in the western hemisphere is mined as a byproduct of other metal products, such as gold, copper, nickel, lead, and zinc. As such, the price of these metals greatly affects the supply of silver mined in any year. As the price of the other metal products increases, the increased profit margin to mine operations stimulates greater production of the other metals,andasaresulttheproductionofsilverincreasesintandem. ELECTROPLATING JEWELARY&SILVERWARE BRAZING&SOLDERING MIRRORS&COATINGS PHOTOGRAPHY SOLARENERGY WATERPURIFICATION

Silver Silver is also mined directly. This is an important but smaller percent of the total production of silver each year. Silver coming directly from silver mining operations accountsforapproximately20%ofthesilverminedeachyear. TheSupplyofSilverisbasedontwofacts,mineproductionandrecycledSilverscraps. Mine production is surprisingly the largest component of silver supply. It normally accounts for a little under 2/3 rd of the total (last year was slightly higher at 68%). Fifteencountriesproduceroughly94percentoftheworldsSilverfrommines.Themost notableproducersareMexico,Peru,theUnitedStates,CanadaandAustralia.Mexicois thelargestproducerofSilverfrommines.Peru,ishowevertheworldssecondlargest producerofSilver.Silverisoftenminedasabyproductofotherbasemetaloperations, which accounts for roughly fourfifths of the mined Silver supply produced annually. Known reserves, or actual mine capacity, is fairly evenly split along the lines of production. The mine production is not the sole sourceothers being scrap, disinvestments, governmentsalesandproducershedging.Scrapisthesilverthatreturnstothemarket whenrecoveredfromexistingmanufacturedgoodsorwaste.Oldscrapnormallymakes uparoundafifthofsupply. Disinvestment and government sales are similar in that both comprise return to the marketofoldcoinsandbarsrespectivelybytheprivatesectororthegovernment.But thesesourcesmaynotaddtosupplyeveryyearonanetbasis. TheothermajorsourceofSilverisfromrefining,orscrapsrecycling.BecauseSilveris usedinthephotographyindustry,aswellasbythechemicalindustry,theSilverused insolventsandthelikecanberemovedfromthewasteandrecycled.TheUnitedStates recyclesthemostSilverintheworld,accountingforroughly43.6millionounces.Japan is the second largest producer of Silver from scrap and recycling, accounting for roughly27.8milliontroyouncesin1997.IntheUnitedStatesandJapan,threequarters of all the recycled Silver comes from the photographic scrap, mainly in the form of spentfixersolutionsandoldXrayfilms. Global silver production rose by 4 percent in 2007, with particularly solid gains from Chile, China and Mexico. Total silver mine production reached 670.6 Moz last year. Peruwastheworldsbiggestsilverminingcountryin2007,followedintherankingsby

Silver Mexico,China,ChileandAustralia.Lastyear,silvergeneratedatprimaryminesdrove global totals higher, increasing by 11 percent to account for 30 percent of all silver mined.
Top20SilverProducingCountriesin2007 (millionsofounces) 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. Peru Mexico China Chile Australia Poland Russia UnitedStates Canada Kazakhstan Bolivia Sweden Argentina Indonesia Turkey Morocco Iran 112.3 99.2 82.4 62.0 60.4 39.5 38.0 37.3 28.5 22.7 16.9 9.4 8.5 8.2 7.5 7.1 3.1

Silver
18. 19. 20. India Guatemala Uzbekistan 2.9 2.8 2.8

(Source:SilverInstitute)

Demand

Silver Inrecentyears,themainworlddemandforsilverisnolongermonetary,butindustrial. With the growing use of silver in photography and electronics, industrial demand for silveraccountsforroughly85%ofthetotaldemandforsilver. ThoughSilverhasalonganddistinguishedhistoryasbeingthemetalofcommerce,it hasshiftedrolesinrecentyearstobemoreofanindustrialmetalthanapreciousmetal. ThesinglelargestuseofSilverisforindustrialpurposes,withtheelectronicsindustry makingupthelionsshareofthisdemand.JewelryandSilverwareisthesecondlargest component, with more demand from the flatware industry than from the jewelry industryinrecentyears.ThephotographyindustryisalargeuserofSilver.Silverisan important ingredient in both the manufacturing of film, as well as in film processing. Silvercoinageaccountsforonlyasmallportionofthedemandforsilverinrecentyears. Silver is first and foremost an industrial metal. Silver components are found in everything from light switches and circuit breakers, to personal computers, stereos, telephones,microwaveovensandautomobiles. Jewelry and silverware demand has been steadily decreasing as a percentage of total use of Silver for many years, since manufacturing and electronics industrial uses of Silverincrease.ThoughSilverisoftenthoughtofasapreciousmetal,inrecentyearsthe fastestgrowingsegmentofdemandanduseforsilverhasbeenfromindustry,hencewe tendtoviewSilverasmoreofanindustrialmetalthanasapreciousmetal. India, the largest consumer of silver, is gearing up to start hallmarking of the white precious metal by April. India annually consumes around 4,000 tonnes of silver, with theruralareasaccountingforthebulkofthesales. AccordingtoGFMS,totalglobalsilverfabricationgrew1percentin2007to843.7Moz. Infact,intheperiodsincethetechnologyrelatedslumpin2001,industrialapplications haveaddedanimpressive120.1Moztosilverdemand.Akeyfactorbehindtheincrease lastyearwasthemorethan6percentriseintheelectricalandelectronicssector,which brokethe200Mozmarkforthefirsttime.India,ChinaandtheUnitedStatesaccounted for70percentoftheworldriseinallindustrialuses,whileGermany,ItalyandFrance also posted gains. Total industrial demand reached 54 percent of total global silver

Silver fabrication

demand

in

2007.

Silverware demand fell by a modest 4 percent in 2007 to 58.8 Moz, as losses in India, Europe and Mexico were partially countered by gains for Russia and China. Photographicdemandcontinuedtodecrease,fallingby11percentin2007to128.3Moz. The bulk of the decline was accounted for by lower consumer demand for color film, thissectorbeingmostaffectedbyfurtherinroadsfromdigitalphotography.
WorldSilverSupplyandDemand (inmillionsofounces) Supply MineProduction NetGovernmentSales OldSilverScrap ProducerHedging 542.2 556.9 591.0 606.2 593.6 600.6 621.1 653.8 647.4 670.6 33.5 97.2 60.3 63.0 60.3 88.4 60.2 67.5 78.2 42.3 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

193.9 181.6 180.7 182.7 187.5 184.0 183.7 186.0 188.0 181.6 6.5 18.9 9.6 27.6

ImpliedNetDisinvestment 48.2 44.8 87.2 TotalSupply Demand Fabrication IndustrialApplications Photography Jewelry Silverware Coins&Medals TotalFabrication ProducerDeHedging ImpliedNetInvestment TotalDemand

10.8

824.3 880.4 919.1 870.4 852.2 872.9 874.6 925.0 913.7 894.5

316.3 339.0 374.3 335.2 339.2 349.8 367.3 405.3 424.8 455.3 225.4 227.9 218.3 213.1 204.3 192.9 178.8 160.3 144.0 128.3 140.6 159.8 170.6 174.3 168.9 179.2 174.9 173.8 166.3 163.4 114.2 108.6 96.4 106.1 83.5 83.9 67.3 67.8 61.2 27.8 29.1 32.1 30.5 31.6 35.7 42.4 40.0 39.8 58.8 37.8

824.3 864.4 891.7 859.2 827.4 841.5 830.7 847.4 836.0 843.7 16.0 27.4 24.8 20.9 6.8 25.0 25.8

11.2

10.5 44.0 77.6 70.8

824.3 880.4 919.1 870.4 852.2 872.9 874.6 925.0 913.7 894.5

Silver
SilverPrice (LondonUS$/oz) 5.544 5.220 4.951 4.370 4.599 4.879 6.658 7.312 11.549 13.384

(Source:WorldSilverSurvey2008)

ImportExport

IthasbeenoneofthedeeprootedhabitsoftheIndianpeopletospendaconsiderable part of their incomes every year for the purpose of gold and silver, partly as unavoidableexpenditureontheoccasionofmarriageandothersocialceremonies,and partly as a safe method of investing their savings. Further, as India produces only a smallquantityofgoldandpracticallynosilveratall,thesepreciousmetalshavealways beenimportedformonetaryaswellasnonmonetarypurposes. The worlds output of silver during 1493 to 1932 was estimated at 15,486 million fine ounces, out of which an amount of 3,000 million ounces was lost or destroyed, an amount of 4,940 million ounces was added to the monetary stock, and the rest amounting to 7,546 million ounces was added to the nonmonetary stock. The Indian shareofthemonetarystockamountedto1,119millionouncesor22.7percent,andof thenonmonetarystockto3,300millionouncesor43.6percent.Theofficialstatisticsfor annualimportsoftreasure(i.e.silvercoinandbullion,andgoldcoinandbullion)and of merchandise shows that the ratio of the imports of precious metals to that of merchandiseremainedpracticallyunchangedduringtheperiod1879to1929.Thesteep fallintheimportsofpreciousmetalsduringtheperiodendingwith1898to1899was due to the disastrous effects of famines and epidemics during the period. The spectacularriseinthedemandforimportsinthedecadeprecedingtheFirstWorldWar was due to a great increase in monetary demand for precious metals. Another noteworthy feature of these imports is that the relative importance of silver and gold importshadconsiderablychangedsince1900,thedemandforgoldrisingrelativelyto thatofsilver.

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Silver

Large proportion of silver imports had always been used for coinage of silver rupees, andaconsiderableproportionofgoldimportsduringtheperiodoftheGoldExchange Standard in India, 1898 to 1914, were similarly used for monetary purposes. The distinctionbetweenmonetaryandnonmonetarytransactionsingoldandsilverisbasic forananalysisoftheexternalaspectsoftheIndianeconomy,becausethetransactions in monetary gold and silver constitute accommodating transactions in the balance of payments,whiletherestofthetransactionsinthetwopreciousmetalsareautonomous. FortheperiodunderconsiderationtheofficialstatisticsofIndiagivedataseparatelyfor the imports and exports of gold and silver coin and bullion, and for trade on both privateandgovernmentaccount. A surge in Indian silver demand during the second half of 1996 represents the years mostdramaticincreaseinconsumption.Fortheyearasawhole,totalimportsthrough Indias two official channels amounted to lust over 100 million ounces representing a riseofmorethan30percentfromthe1995level.Theincreasewasduetoanumberof factorsincludingtherisinglevelofconsumerdemandforsilverwarecoupledwithgood

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Silver harvests, particularly in the Northern tribal belts where heavyweight silver jewelry remains the favored method of saving among rural populations. The rise in demand wasnotsimplyapricerelatedphenomenon.Infact,theyearsaveragepriceroseby6 percent.Heexplained,however,thatthefallinthepriceduringthecourseoftheyear helped accelerate the pace of imports which rose from 13 million ounces in the first quartertoanewrecordlevelofalmost35millionouncesinthefourthquarter. TheimportsofSilverhaverisenconsiderablytoalmostfourfoldsin2007ascompared to2006.

SilverPrices Because silver is a precious metal, its price is determined by the supply and demand ratioatanygivenmoment.Asisthecasewithotherpreciousmetals,thereisalimited amount of silver in the world. Itisnot a productthat can be manufactured en masse, and, therefore, is subject to issues such as weather and politics that may affect silver miningoperations.

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Silver Unlike the price of solid gold, silver prices were fairly stable throughout the decades from19501970,however,therewasastrongupturninthelate70sthatlastedintothe 80s.Silverpriceswentfromaround$2toover$20andthenstartedtomovebackdown. By1990,silverhaddroppedagaintoaround$5. One of the reasons for the sudden decline in Silver prices from 1980s till now is the declineinitsdemandasaninvestmentoptionbycustomers.However,accordingtothe SilverInstitute,(2002Report)forthefirsttime,inovertenyearstherewasanincrease in silver investment. Because silver can be an important store of value. For example, between 1971 and 1981, the U.S. dollar lost more than half of its value, while silver pricesrosenearlyfivetimes. ThePricesofSilverhadhitahighof20.65USDperOzintheyear1980.Afterthat,there hasbeenadeclineinpricesofsilveroverthenext2decades. The silver price in 2004 staged a dramatic rally, rising a robust 36 percent to average $6.66perounce.Thiscomparedtoanaveragepriceof$4.85in2003.Thisstunningprice performance reflectsfundamentalchangesin silverssupply/demandbalance.In2005, the silver price experienced a 10 percent increase over the average 2004 price of $6.65 perounce,toanaverageof$7.31perounce. In2006,thesilverpriceexperienceda58percentincreaseovertheaverage2005priceof $7.31perounce.Thesilverpricereachedlevelsnotseenin26yearsandwastheleader whencomparedwithgold(36percentincrease)andplatinum(27percentincrease).The primary factor driving the stronger silver price was the continued strength of investmentdemand,whichreturnedinearnestin2005,wassustainedin2006. The annual silver price, led by continued strong investor and industrial applications demand,averagedanimpressiveUS$13.38in2007.Thisresultrepresenteda16percent priceincreaseover2006,andonapercentagebasiswasstrongerthanthatenjoyedby gold,platinumandpalladiumlastyear.Whenlookingatthe2007silverprice,thewhite metalpostedaverysolidperformancetoaveragesnotseensince1980.

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Silver

16.00 14.00 Prices (US$ per Oz) 12.00 10.00 8.00 6.00 4.00 2.00 0.00

Silver Price trend during1990-2007

1990

1992

1994

1996

1998

2000

2002

2004

2006

(Source:www.silverinstitute.org)

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