http://silver-metal-investment.blogspot.com/2011/04/no-silver-lining-left-for-users-of.html No Silver Lining Left for Users of the Metal
Posted by PRECIOUS-METAL-INVESTMENT 00:08
investors are smiling about this year's rally in the price of the precious
metal, now closing in on an all-time high. But silver's surge is hurting major
users and even a few miners, including some blindsided by the relentless
climb.Nearly 75% of the world's silver supply is used to make film,
jewelry, mirrors, batteries, solar panels and other products.
companies have scrambled to find cheaper substitutes, reduce their silver use or
lock in hedges against future price increases, the moves aren't enough to offset
"We're raising prices, indexing contracts, hedging and moving
as fast as we can with the part of the portfolio that's not silver dependent," Eastman
Co. Chief Executive Antonio Perez
analysts in an earnings call Thursday. Rising
commodity costs, especially for silver used in film manufacturing, helped drag
Kodak to a first-quarter net loss of $246 million.Every $1 increase in the per-ounce price of silver subtracts
$10 million to $15 million from the Rochester, N.Y., company's bottom line.
Kodak increased motion-picture-film prices in March and might have to do that
again, Mr. Perez warned. The company also is trying to shrink its dependence on
Silver closed Thursday at $47.52 a troy ounce, up $1.562, or 3.4%,
and just short of the $48.70 record settlement reached in 1980. Adjusted for
inflation, that record price would be equivalent to $139.88 today.
skyrocketing 84% in 2010, silver prices have jumped another 54% so far this
year. In comparison, gold is up 7.7%, hitting a new record of $1,530.80 an ounce
Much of the recent silver price jolt has been fueled by
investors who are piling into exchange-traded funds and bullion as a way to
hedge against inflation or currency declines.
But the latest surge overran
expectations of some silver producers. As prices rose late last year, some
miners stepped into the market to lock in profits.
U.S. Silver Corp., with
several mines in Idaho, promised to sell 500,000 ounces at a fixed price of
$27.50 an ounce—or 20% of its projected silver output in 2011. Executives
figured that would leave the Toronto company with a hefty profit margin.
when prices kept soaring, U.S. Silver had to post more collateral. "I wouldn't
have expected it to be this high, and I don't have any better crystal ball than
the next person," says U.S. Silver CEO Tom Parker. "You can always look into the
past and say that's a dumb decision. But at the time, it seemed to be a prudent
thing to do."
U.S. Silver has no plans to hedge any more of its silver
production at the current price.
Co., silver is the largest metal cost in the unit that makes silver paste, which
is needed for plasma TVs and other electronic products. DuPont is working on
technologies to reduce or replace silver when possible, says David Miller, the
division's president. "We're looking for alternatives," he says.
passes along changes in silver prices at the time of delivery. So far, customers
are putting up with the jumps and haven't delayed orders.
Solar-panel maker Suntech
Co. is trying to rev up production of solar cells that use
copper instead of silver. A thin layer of silver is coated on the surface of
cells because of its ability to conduct electricity.
The Chinese company last
year introduced its "Pluto cell," made from copper costing $4.25 a pound. But
90% of Suntech's solar cells still require the use of silver.
Macpherson, Suntech director of investor relations, says the company is trying
to cut expenses elsewhere in its supply chain but will have to absorb some of
the rise in silver prices.
Danish jeweler Pandora AS, which operates in 60
countries, raised prices early in this year's first quarter in order to stick to
its profit-margin target of 40% for 2011, says Mikkel Olesen, the company's CEO.
Still, as silver keeps climbing, Pandora is considering another round of price
increases in the third quarter.
Beautiful Silver Jewelry, an online jewelry
retailer, now is selling more items made from stainless steel or rhodium-plated
material, in addition to its inventory of sterling silver. "We didn't anticipate
prices rising quite this far," says Jane Ingraham, the San Diego company's
The big winners as silver defies gravity include precious-metal
refineries, where people sell silverware, old jewelry and industrial products
that contain silver.
"We and every other refinery are all inundated with
silver scrap business," says Terry Hanlon, president of Dillon Gage Metals,
which operates a refinery in Dallas. The amount of second-hand silver bought by
the company is up by about 70% during the past six months. Dillon Gage recently
bought two new furnaces to meet demand.
The influx of scrap silver and
manufacturers' efforts to reduce reliance on silver eventually will restore
gravity to the market, predicts Philip Klapwijk, executive chairman of GFMS
Ltd., a London metals consulting firm. "But I don't
think things will change very quickly because of silver's unique
he says. GFMS expects industrial demand for silver to
grow at a 6.5% annual rate through 2015, propelled by emerging markets and the