The Silver market is set to remain undersupplied for a fifth consecutive year, with physical demand declining but ETF flows pushing the overall deficit to a decade-high, Commerzbank's FX analyst Michael Pfister notes.

Industrial demand remains near record levels

"A week ago, the Silver Institute, in cooperation with Metals Focus, published updated forecasts for the Silver market. According to these forecasts, the market is likely to be undersupplied for the fifth consecutive year. However, the supply deficit is expected to be lower than previously anticipated at 95 million ounces, and also significantly lower than in recent years. The reason for this is an expected decline in physical demand of 4%."

"Demand in all segments is expected to be lower than in the previous year. The decline in industrial demand is rather modest at 2%. Industrial demand thus remains close to the record level recorded a year ago. Physical investment demand (bars and coins) continues to show weakness, falling slightly again after the sharp decline in the previous year and reaching its lowest level in six years."

"Until now, the Silver Institute and Metals Focus had assumed that physical investment demand would increase this year. The assumption for ETF demand, which is not counted as physical demand, has been revised significantly upwards. If this is included in the market balance, the market deficit reaches 295 million ounces, its highest level in at least 10 years. The Silver market therefore remains very tight, which argues for a high Silver price."