Metals Focus, an independent metals research consultancy, believes that silver markets might experience a supply crunch due to the current state of metal production. According to recent reports, silver production has a three-year deficit with a demand increase from tech-derived products, such as electric panels.

Silver’s mining peak occurred in 2016 when 900 million ounces were extracted. However, this year’s production is expected to fall 62.8 million ounces short of that number, with rising demand. The institution stressed that “mine supply growth is likely to remain modest, with only minimal increases globally.”

Metals Focus explains that this is due to how silver is produced. Most of its extraction comes from mines focusing on other metals such as copper, lead, and zinc. This is why price increases don’t affect silver production as much as other metals.

Nonetheless, primary silver mines, which account for 28% of the silver mined, can not ramp up production due to increasing extraction costs that outpace current bull market gains. If silver prices grow enough to get miners in green numbers, production hikes will still depend on miners’ capital allocation.

Even if these miners start developing new mines, the time that this process involves makes it impossible for demand to increase production immediately.

The institution explained:

It is implausible that new production could balance the current deficits over the short to medium term. For those shortfalls to end, we are instead dependent on recycling and demand to react to the forecast price rally.

Peter Krauth, a silver market analyst, had predicted this situation in June, explaining that the high demand was being satisfied by tapping into above-ground inventories from silver futures markets.

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