Global silver demand rose 4% last year, chalking up its first increase since 2015 thanks to sharply higher consumption in India, with a supply fall creating a small deficit, an industry report said on Thursday. The world consumed 1,033.5 million ounces in 2018, up from 998.4 million ounces in 2017, according to the Silver Institute's World Silver Survey 2019, prepared by GFMS analysts at Refinitiv.
Driving the increase was India, where high gold prices spurred many consumers and investors to switch to cheaper silver, analyst Johann Wiebe said.
India's consumption of silver jewellery jumped 16% to 76.5 million ounces in 2018, which along with a rise in the United States helped to push up overall jewellery demand by 4% to 212.5 million ounces.
Purchases of silver investment bars in India, meanwhile, surged by 160% to 69.4 million ounces, lifting global bar and coin investment by 20% to 181.2 million ounces, Wiebe said.
Use in electronics rose slightly, but efforts by solar panel manufacturers to cut costs by reducing silver use dragged industrial demand down 1% to 578.6 million ounces.
Supply of silver, meanwhile, dipped 3% to 1,004.3 million ounces owing to reduced mined and scrap output, leading to a physical market deficit of 29.2 million ounces, the report said.
Demand is likely to fall this year by about 1%, Wiebe said, but would rise again in 2020 and 2021 as production of solar panels picked up and U.S. coin sales expanded.
He said supply would rise by about 1% in 2019 before falling again in the early 2020s.
Silver prices are affected by supply and demand but heavily influenced by investors who often buy precious metals as a perceived safe-haven asset during times of economic or political uncertainty.
Wiebe said he expects rising economic and political turbulence, along with a likely weakening of the dollar, to push prices higher, with silver averaging $16.75 in 2019 and $17.50 in 2020.
A weaker dollar is supportive for silver, which is priced in the US currency, by making it cheaper for buyers outside the United States.
Silver is currently trading around $15.25 an ounce.
It averaged $15.71/oz last year, down about 8 percent from 2017 and underperforming gold, which fell 1% to average $1,268 last year.