Are Silver Prices Behind This Big Production Cut?

Interesting pointer on the silver market this week. Suggesting that global supply may be constricting in response to lower prices.

The news came from notable global producer Mitsui Mining and Smelting. Who provided production guidance for the first half of 2014 yesterday–showing some big changes ahead for the firm’s precious metals output.

Mitsui said it expects its first-half silver production to fall 35% as compared to the same period of 2013. To 68,400 kilograms (2.2 million ounces), down from 104,500 kilograms (3.4 million ounces).

The company gave little explanation for the significant decline. Except to note that output “reflects the impact of material grades.”

This suggests that the firm is moving to mine ores containing lower silver grades at its global operations. Most notably, from its lead-zinc-silver mines in Peru.

It’s notable that this drop comes as silver prices have declined from $32 per ounce to a current level around $20 per ounce.

The timing could be coincidental. With mine planning simply happening to run into ore containing lower precious metals content.

But given the suddenness and severity of the production cut, it’s more likely this represents a conscious shift away from high silver-content mineralization. Especially given that Mitsui’s output of associated metals like zinc and lead is forecast to remain more or less steady. Managers are simply choosing to leave the precious metals in the ground ahead of better pricing.

If this is indeed the case, it’s one more example of low prices starting to cure low prices for silver and gold. Silver may see an especially strong effect in this regard. Given that much of global production comes as by-product from base metal mines like Mitsui’s. Where output can be more easily adjusted based on prevailing prices.

We’ll see if actions like this put a floor under the market.

Here’s to saving the best for later,

Dave Forest / @piercepoints / Facebook

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