Metal Market


Precious and base metals overview - Trends and facts for silver, gold, zinc and lead

The value of Sotkamo Silver's ore resources is most affected by the silver, gold and zinc price trends. The price of base metals (zinc, copper, aluminium, etc.) and silver is strongly influenced by the global industrial economy. The price of silver, however, follows a slightly different pattern. Demand for gold is primarily driven by private consumption or private investment, while the silver demand is affected strongly by industrial demand. However strong industrial economy and high private consumption often coincide.

Metal prices are limited downwards by stoping and beneficiation costs but have no theoretical limit to the upside. Price trend of base metals was upward from 2002 to the middle of 2008 but fell sharply autumn 2008. Base metal prices recovered significantly in 2009. The supply of base metals increases with a lag, due to the long lead times from exploration permits to mining operations and also because of the exploration budgets that were sharply reduced in the early 2000s, when metal prices were substantially lower.

Long term metal demand

The long-term demand for metals is driven by macroeconomic conditions. The figure below shows the growth in the world, "GDP per capita per year", with the distance in time between countries at the year 2010 and the anticipated growth line to follow by China.

The figure shows that if China and India follow the same trend as several well-developed countries, they will face a period of strong economic growth during next decades.


The figure below shows that zinc consumption has risen sharply in South Korea and in the U.S. when the GDP per capita growth has been from 5 000 to about 12 000 USD per year.

If China and India followed the same historical pattern of income and metal consumption as the U.S. and South Korea, the demand would increase by about 2 - 4 million tonnes in China and around 1 million tonne in India up to 2010.

Only a 3 - 5 million tonnes' increase in zinc consumption in China and India corresponds to about 35 percent of the global consumption in 2008, 11,5 million tonnes. Naturally, slower growth or, even braking of the growth extends the time horizon, which in turn would have a dampening effect on the prices of base metals. With an expected strong growth in major economies, there are, however, conditions for metal prices to stabilise at a historic higher level.


Silver (Ag) is the most common of the precious metals. It has the highest electrical conductivity of all elements and the highest thermal conductivity of all metals.

Although silver is best known as a material for jewellery and ornaments, industrial use constitutes over half of all consumption. A quarter of the consumption is electrical or electronic use for example in keyboards, cables, or silver oxide batteries. Other industrial uses of silver are for example as a catalyst in chemical reactions or for optical uses as reflecting materials in mirrors or solar panels. Silver is also used in some applications due to its antibacterial qualities. In pace with the digital camera development, the demand for silver in the film industry has halved over the past ten years, which has been balanced by stronger demand from other uses.

Much of the increased demand comes from jewellery market in the BRIC countries, where the silver jewellery is much cheaper and often more modern than gold jewellery. An additional element of demand that has increased strongly since the end of 2003 is investments in silver. The lag vis-à-vis gold investments are approximately two years, but the cause is the same: protection against the weaker dollar and expected high inflation. Development of the dollar exchange rate and inflation in 2010 will determine how silver investments unfold.

Silver Market Review

Mine supply of silver in 2010, the major of which comes from base metal mines and gold mines, increased by 3% y-o-y (742t).  Whereas recycled silver supply and Governmental and other official sector sales decreased y-o-y by 6% (-772t) and 50% (250t) respectively.  This produced a flat silver supply market for 2010 in relation to 2009 after two years of growth.

Mine output contributes 65% of the total silver supply and has increased since 2005, however, the majority of silver supply is dependent on by-product production from polymetallic base metal and gold mines.  Therefore increases in supply also relate to the base metal and gold prices and planned developments of these operations. Mexico recorded the highest growth in production from the primary silver mines in 2010 and became the world’s largest producer.  A breakdown is illustrated by the pie below. The largest producing mine was BHP Billiton’s Cannington Silver Lead/Zinc mine in Australia.  However, the largest silver producing company was Industrias Penoles which controls 8% of global production, see below figure.  Goldcorp’s Penasquito increased production by 300 tonnes silver in 2010 and has the possibility to increase output another 250 tonnes in 2011, which is considered the largest expansion that is planned for silver output over the coming year.

The image below: Largest 40 Silver Deposits and producing mines in the World. Reserves & Resources (Moz)

x1,000,000 Oz


In Mexico, the world’s leading silver-producing country in 2010, silver production increased by 24%, to 4,411 t in 2010 from 3,554 t in 2009. Silver production decreased in Peru (6%) and in China (21%), the world’s second and third ranked silver producers, respectively. Regionally, in 2010, silver production increased in Oceania (mainly Australia) by 14%, to 1,880 t from 1,650 t in 2009 and in Africa by 11%, to 432 t from 390 t in 2009. According to data compiled by the Silver Institute (2011), silver produced from primary silver mines increased by 5%, to 6,950 t in 2010 from 6,600 t in 2009; silver produced from gold mining decreased by 4%; silver produced from copper mining decreased by 3%; and silver supplied from lead/zinc mining increased by 5%.

Silver production in Sweden was 270 tonnes and in Finland 70 tonnes in 2010. (USGS, 2010 Minerals Yearbook )

Image Below: Silver Mine Production by Country 2010 (Raw Materials Group)









Throughout 2010 strong demand for silver came from investor interest in ETF’s (exchange-traded fund; silver index fund), coins and other investments.  This activity has seen demand decrease slightly instead of the continued strong demand for Jewellery and industrial uses such as the electronic industry, particularly the solar energy sector, where silver is used in crystalline silicon photovoltaic cells,  -1.6% yearly.  During the same period, the yearly average silver price increased by 38% yearly.

Historically, the photography has been a major source of demand, but with the arrival of the digital camera this has constantly decreased since 2001 and is now only 12% of the demand, which was 22% in 2001.  It is the arrival of new uses from the alternative energy sector which has increased the strong demand for silver.

China became a net importer of silver late 2009 and continued this on a monthly basis throughout 2010 even though the country is the third largest producer of silver.  With China’s forecast growth this trend as a net import is expected to continue.

World mine production of silver was 23,100 t in 2010, a 5% increase from the revised 22,000 t of silver produced in 2009.

Market Balance (tonnes Ag) Source: RMG 2011)

The silver market has remained in surplus over the past decade averaging 16% of supply and 19% of demand since 2001. In 2010 the surplus increased by 2.6% per year and reached its largest surplus of just under 7000 tones. The fact that this happened during a year of the second highest price increase, only beaten by the increase from 2005 to 2006, was due to investor interest and investor speculation in the market. High prices and geopolitical risk will maintain such investments in and demand for silver. (RMG 2011)

Image below: Source RMG 2011


This surplus does not balance. Demand exceeds supply. This means that market is very difficult to study. There are silver flows of considerable magnitude associated with the unofficial market, such as smuggled or stolen metal. There are sectors which cannot be measured. These include investments or bar hoarding. The surplus does not reflect the net long or short positions held by the hedge funds or speculators over year-end.

World silver consumption increased by 15% to 32,900 t in 2010 from 28,700 t in 2009 (Silver Institute, The, 2011) and investor interest in silver was overridden by the industrial demand for silver. The photovoltaic industry has emerged as a significant industrial-use sector for silver and was expected to become an even more substantial user of silver in the future. The use of silver in photographic application continues to decrease; however, this decrease has begun to level off as the silver-containing paper was still used for high-quality paper prints from digital sources. (USGS, 2010 Minerals Yearbook )

The use of RFIDs for tracking stocks and shipments, including silver-base high-data-capacity tags, readers, and computer systems, was expected to increase. Silver oxide batteries and conductive inks were increasingly being used in the electronics field. Owing to its antibacterial qualities, silver was expected to see increased use in medical applications. Nanoparticle silver is also expected to see increased use in industrial applications, and antimicrobial silver technology is expected to be used in keyboards, paper, pens, and telephones. Silver-based biocides were expected to be increasingly used and indicate a new generation of safe and environmentally friendly uses of silver for the control of bacterial, viral, and fungal infections, on hard surfaces and in water systems, and as a wood preservative. ETF inventories continued to increase year-on- year and indicated continued investor interest. Mine production increased owing to new projects in Argentina and Mexico. (USGS, 2010 Minerals Yearbook )

Silver price development 

20 Year Silver Price


Source:, 2013

Gold / Silver Ratio

There is 15 or 20 times more silver in the Earth, but much of this may never, under any circumstance, be financially viable to mine.

Other ratios:

  • 9:1 is the ratio of silver to gold annual mine production

  • 1:6 is the estimated ratio of economic silver to gold in the ground

  • 5:1 is the estimated physical ratio of all silverware, silver/gold jewellery and other stocks above ground

  • 1:1 is the year-to-date ratio of investment dollar demand.

  • 3:1 (more silver than gold) is the physical ratio of silver and coins/bullion

Gold/Silver price ratio development below

36 year gold silver ratio

The chart above: Gold silver ratio 1975 - 2013. (source:


Gold (Au) is a precious metal and chemically one of the least reactive metals. Gold's unique combination of physical and chemical properties makes it extremely malleable. Gold is an excellent conductor of heat and electricity, and highly reflective. Gold doesn't corrode, discolour or rust when exposed to oxygen or water.

Most of all gold produced is used for jewellery. Quite a share is also used in dentistry and the remainder in semiconductors, circuit boards and microchips in electronics and telecommunication industries.

Less gold is produced than the global demand. Approximately 65 percent of the global demand is covered by production in gold mines. The remaining 35 percent is satisfied through the central banks gold sale and to some extent by recycling of gold scrap from the jewellery industry and other industries. A large part of the world's gold is held in central banks and an uncontrolled sell-off mainly by European central banks in the 1990s had a negative impact on the gold price. Since 1999, the European central banks have regulated their sales which are currently limited to 400 tonnes per year or totally 2000 tonnes on 27 September 2014.

The gold production has been relatively constant in recent years and is expected to remain at that level for the coming years. The global pace of exploration has early been low due to low gold prices. The number of new mines with production start in the near future are few and will not compensate the natural loss when older mines shut down.

In a historical perspective, the price of gold has risen in periods of uncertainty and during downward market trends. During the past 20 years, the price has fluctuated between 250 - 1,500 USD per troy ounce i.e. 31,1 grammes. The gold price is negatively correlated with the value of the U.S. dollar. When the dollar falls, the price of gold tends to increase.

To get a feeling for the future changes in gold price, it is important to understand the relationship between gold price, supply and demand. Crucial for a mining company is the average gold price over time, while short-term fluctuations are less important.

Price levels in 1999 have an impact on gold supply today because it led to sharply reduced exploration activities. The effect of reduced exploration is still noticeable and may explain some of the gold price surges in recent times. In contrast, the short, steep ups and downs around the turn of the year 1979/80 were mainly a speculative phenomenon that seems unlikely today due to fundamental changes in the long-term demand.


Zinc (Zn) is the fourth common metal in use worldwide (after iron, aluminium and copper). Zinc is a relatively base metal and is therefore used in its pure form in particular as corrosion protector in various applications: galvanised steel products such as sheet metal, rebar or sacrificial anodes on ships or bridges (a total of about 50 percent of zinc use). Zinc alloys include brass, an alloy that consists up to about 45 percent of zinc (about 35 percent of all the zinc is used in alloys). Other industrial uses are in batteries or as castings in the automotive industry. In addition, zinc oxide is used as white pigment in paints and as an activator in rubber industry, and also in sunscreens against strong sunlight.

The demand for zinc at the times of increasing prosperity is well illustrated by the following examples: in 1960 about 2,5 million tonnes of zinc was consumed in the western world. The volume more than doubled over a period of increasing prosperity reaching 5,8 million tonnes in 2002. The total zinc consumption in selected emerging markets - China, India, South and North Korea, Thailand, South Africa, Mexico and Brazil – was 233 000 tonnes in 1960. In 2002 the consumption in these countries was 3 million tonnes, which was more than a tenfold increase in 40 years. This interval was chosen to demonstrate that the increasing metal demand in emerging markets has only had a marginal influence on metal prices until 2002.