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机构：中金公司
研究员：Ding QI/Can ZENG/Yan CHEN
The silver price hit a 12-year high in the domestic market, and a 3- year high abroad. We think the recovery in the gold-silver price ratio should unleash the upside potential of silver prices.
The Shanghai Futures Exchange’s main gold futures contract closed at Rmb7,204/kg on April 10, the highest since October 2012. Meanwhile, the main silver futures contract at COMEX hit an intraday high of US$29.9/oz on April 12, the highest since February 2021.
The correlation coefficient between spot prices for gold and silver on the London Metal Exchange (LME) since January 1968 is as high as 90%. During the previous six rounds of price rallies of precious metals, silver showed greater price elasticity than gold. For example, between October 2008 and April 2011, spot prices for gold and silver on the LME rose 83% and 309%, which we believe was fundamentally due to the increased use of silver in industrial manufacturing.
By April 12, the gold-silver ratio was about 82.65, which indicates large upside compared with an average of 67.7 since 2000, and COMEX gold and silver prices stood at US$2,411/oz and US$29.17/oz. We expect the silver price to recover more strongly during this round of rallies.
Comments
The silver supply fell short of demand in 2021, and the deficit may remain large in 2024. Moreover, the accelerated ramp-up in production of TOPCon solar cells may further drive up silver demand.
According to the World Silver Institute, the global silver supply deficit hit a new high of 7,393t in 2022, and reached 4,400t in 2023. The World Silver Institute1 forecasts that total global silver supply in 2024 may rise 2-3% YoY to 31,700t, and total silver demand may reach 36,700t, implying a supply deficit of about 5,000t.
In addition, the accelerated ramp-up in production of TOPCon solar cells should further drive up silver demand. The CICC PV team estimates that TOPCon share in the PV market will rise from 25% in 2023to 60% in 2024, and silver demand from PV sector may grow 20% YoY to 6,116t in 2024.
In 2023, silver resources owned by the firm’s Yulong lead-zinc-silver mine, increased 17.4%, and the service life of the mine may be significantly extended. The firm's Yulong lead-zinc-silver mine in 2023 reported incremental ore resources of 1,328.6t of silver, 10.62t of lead, 22.5t of zinc, 5.73t of copper, and 0.92t of tin. Yulong mine's silver resources (100% benchmark) in 2023 rose 17.4% YoY to 8,018.82t from 6,832.49t in 2022. Based on the firm's silver output of 193t in 2023, we expect the service life of its silver mines to be significantly extended.
The Yulong lead-zinc-silver mine is highly profitable, and the rising silver ASP may boost earnings growth for Yintai Gold. The firm's mined silver output in 2023 was 193t, and the cost after consolidation and amortization was only Rmb2.34/g. Yulong Mining generated net profit of Rmb360mn in 2023.
As of April 10, the average YTD price and last price of the main silver futures contract at Shanghai Futures Exchange were Rmb6.15/g and Rmb7.37/g, up 9% and 31% YoY compared with 2023 average of Rmb5.64/g. We expect the rising silver ASP to boost earnings of the firm’s silver business.
We maintain an OUTPERFORM rating, our earnings forecasts, and our target price of Rmb21.5, which implies 30x 2024e and 23x2025e P/E, and 3.6% upside. The stock is trading at 28.9x 2024e and 22.1x 2025e P/E.
Risks
Silver prices lower-than-expected; sharper-than-expected rise in costs.