February 21, 2011

Silver lndustrial Case Study February 2011:

Rethinking Photographic Silver Consumption
The number one probem n the fnanca markets snt that traders, nvestors, and
specuators dont know what theyre dong. In fact, they understand very we the
mechancs of fnance. However, many nvestors coudnt even begn to expan what
drves commodtes, but theyd be more than happy to gve you a recommendaton on
what makes a great buy!
As tme progresses, one often repeated pece of msnformaton becomes more popuar
wth sver bears: "Sver consumpton from photography s n decne." Taken ony at
face vaue, many observe ths to be true after comparng pe charts of one years
consumpton to another pe chart of another years sver consumpton. From 2000 to
2011, the statement s true: the spread of the dgta camera has mpacted the data we
use to chart sver consumpton. However, that does not mean that there have been
any shfts n consumpton at a.
Silver's Relationship with Photography
It shoud be mportant to reaze the dvsons of the photography market and how they
are reated to sver. Keepng ths nformaton n mnd, you be abe to make your own
anayss of the stuaton, and were sure you see why photography reay snt a that
mportant.
There are three peces of the photography market:
Color Photography - Vrtuay a sver used n makng coor photography s
recyced.
Black and White Photography - Ths s the ony consumer-grade photo
deveopment product that consumes sver.
Medical lmaging - X-ray machnes produce pctures that are deveoped wth
sver; sver s consumed n ths process, and t s not recyced.
Wth those peces of nformaton n mnd, we can see qute ceary how the move
toward dgta photographs s affectng sver-t snt!
Coor photography resuts n essentay net-zero consumpton of sver n the frst
pace. Back and whte photographs are not neary as popuar as they mght have been
n the days before coor photography, and t woud be reasonabe to say that few
outsde those newy-engaged, marred, or graduated even purchase back and whte
pctures. Have you even seen a rea back and whte pcture atey?
In fact, accordng to the USGS, 272 tons of sver were used n coor photography,
whe the back and whte segment of photography consumpton added up to ony 11
tons.
Then we get to medca magng. Ths s the ony category that s actuay growng, and t
s the ony subset of the entre photography market that actuay consumes sver n the
deveopment of mages. Keep n mnd, too, the shft n demographcs. As the baby
boomers n the Unted States and around the word get oder, t s certan that the
medca consumpton of sver (as t reates to photography) w ony contnue to rse.
We w ca t the "broken hp bp" on the sver charts.
Digits and Data
Accordng to the 2000 US Geographca Survey, t was found that some 1,870 metrc
tons of sver were used n photography, and t was expected that 1,450 metrc tons
coud be recovered. Thus, we can expect that even after accountng generousy, 77%
of a sver used n photography s smpy recyced agan.
To come to ths concuson, the USGS found that coor negatves, reversas, and moton
pcture fms made for 100% of sver recovery. Back and whte fm, by contrast, ed to
consumpton ony n the range of 50-60%, thus 40-50% coud be recyced. X-rays, for
a purposes showed consumpton of 50-60%, thus a tota recovery of 40-50% of
"consumed" sver.
Recycng sver from photography s done wth ease. Consder that n 2000, the prce of
sver was |ust over $5, and yet 77% of t woud be recyced. The other 23% was
actuay "consumed." Ths ndcates that n a photographc purposes, the separaton of
sver from other eements and materas snt neary as dffcut as t s n other ndustra
purposes.
Production as a Variable
Whe t appears that the amount of sver s very much mted n suppy, and that sver
producton may soon peak as the easest-to-fnd sver becomes tapped (suppes tend
to get short when prces rse seven-fod n one decade), svers annua producton has
rsen consderaby snce 1990, from roughy 16,000 to 20,000 tons per year.
What makes ths mportant? The other haf of the photography market argument does.
Anaysts see ony a shrnkng pece of the sver pe beng dedcated to the photography
market, but fa to consder that the actua annua producton was growng recenty,
whe photography demand, as t appears n the comparson charts, was actuay
stayng fat.
The true amount of sver consumed n photographc deveopment actuay ncreased,
even though by percentage, t actuay decreased.
Aso, comparsons by percentage do not take nto consderaton that most sver n the
"photo consumpton" category snt consumpton at a, snce a ma|orty s recovered
after the fm s deveoped. If most sver used n photography wasnt beng consumed
ten years ago, then why does t matter today that the amount of sver n the
photography category s shrnkng? Woudnt that |ust mean that ess sver s foatng
around n crcuaton before t s recyced? Indeed, t woud.
Silver's Replacements
The possbe repacements for sver n photography are few; that s, wthout sver, we
cannot have back and whte mage deveopment, nor can we have any hardcopes of X-
rays.
It s mportant to note that X-rays have sowy reduced the tota amount of sver
consumed n each mage. X-rays produced from 1987 to today are roughy 1% sver to
weght; n the sx years eadng up to 1986, X-ray mages were 2% sver by weght.
There s a sma excepton to ths rue that some anaysts cte: the MRI of today s
essentay what the X-ray machne was for generatons pror. MRIs, unke tradtona x-
ray machnes, produce dgta mages that do not need to be deveoped, and thus, do
not requre any sver to make the mages. However, snce MRI machnes are cost-
prohbtve, a the avaabe sver eft on ths earth may be 100% consumed by the tme
the MRI competey repaces the X-ray.
At best, such a vew s the resut of nvestment tunne vson, seeng ony what
renforces a poston and gnorng most everythng ese. In ths case, t s aso the resut
of geographc, maybe even natonastc tunne vson. Natona debts notwthstandng,
the Unted States and other deveoped, European natons are very, very weathy. Whe
the MRI may be the new standard n deveoped economes, much of the word coudnt
even begn to consder the purchase of an MRI machne, as few can even afford a basc
X-ray today.
When the words weath shfts from the deveoped word to the emergng markets,
what do you thnk they demand most? Second ony to food, as weve seen n recent
rots, consumers w key demand better access to heath care, as we as better heath
care n genera. To be absoutey truthfu, even n the twenty-frst century, more peope
go wthout heath care than ve wth t. Those of us who have access to a doctor are,
by contrast to the rest of the word, vng ke bonares.
In the emergng markets, t s not at a uncommon to see od Amercan and European
economy cars beng drven we past ther fe expectances domestcay, nor decades-
od appances to be the prde and |oy of a ktchen n the deveopng word. Lkewse, t
snt uncommon to see our "outdated" medca equpment used to treat bons of
peope n emergng, fronter markets.
There s st an entrey arger group of peope who w consume medca care, but w
not be abe to afford the best of the best when t comes to medca care. Were sure
that foowng centures of poverty so deep that access to a doctor s a but mpossbe,
an X-ray machne w do the trck |ust fne.