Is this the Silver Squeeze in 2023?

May 4, 2023

The Changes in Mexican Mining Laws and its Impact on Silver

Mexico is one of the world’s largest producers of silver, and the mining industry is a significant contributor to the country’s economy. The recent approval of a new mining law in Mexico could have a significant impact on the supply of silver from mines in the country. The new law imposes strict regulations on the mining industry, which could make it more challenging for companies to operate, particularly smaller junior mining companies.

The new law requires mining companies to obtain environmental and social permits before commencing operations. This process could be time-consuming and costly, which could discourage smaller companies from entering the market. Moreover, the law imposes stiff penalties for non-compliance, which could further burden smaller companies that may not have the financial resources to meet the new requirements. This could result in fewer mining operations in Mexico, leading to a decrease in the supply of silver from the country.

Additionally, the introduction of a royalty system could further impact the supply of silver from mines in Mexico. Under the new law, mining companies are required to pay a percentage of their revenue to the government. This could have a significant impact on the profitability of mining operations, particularly for junior mining companies that may have smaller profit margins. The new royalty system could discourage companies from investing in mining operations in Mexico, further reducing the supply of silver from the country.

The restrictions on foreign investment in the sector could also have an impact on the supply of silver from mines in Mexico. The new law requires companies to have at least 51% Mexican ownership, which could discourage foreign investment in the sector. Foreign investment is essential for the development of mining operations, and the restrictions could limit the growth of the sector, leading to a decrease in the supply of silver from Mexico.

Silver to the Moon?

Many will remember that there was an ongoing silver squeeze in 2021, which led to a temporary shortage of physical silver in some areas. The silver squeeze was largely driven by retail investors and traders purchasing physical silver and silver-related assets, creating a surge in demand that outpaced supply.

As for 2023, I cannot predict the future of the silver market and whether there will be a shortage. The silver market, like all commodity markets, is subject to various factors such as global economic conditions, supply and demand dynamics, and geopolitical events, which can have a significant impact on prices and availability. However, it is worth noting that silver is a finite resource, and mining companies will face challenges in meeting growing demand due to regulatory hurdles especially these new laws in Mexico and increased costs of production with higher global inflation. So a sharp increase in Silver price is most likely for 2023! Remember buy physical not paper Silver ETF’s!

Silver Supply Effected

The new mining law in Mexico could have a significant impact on the supply of silver from mines in the country. The increased regulatory requirements, royalty system, and restrictions on foreign investment could make it more challenging for mining companies to operate, particularly smaller junior mining companies. This could result in a decrease in the supply of silver from Mexico, which could have implications for the global silver market.

Silver Production and Uses

Silver Production in 2021

According to the Silver Institute, global mined silver production grew by 5.3 percent in 2021, reaching 822.6 Moz. This increase was the most significant annual growth in mined silver supply since 2013 and was driven by the recovery in output following COVID-19 related disruption in 2020.

Primary Silver Mines

Silver production from primary silver mines increased by 10.2 percent in 2021. Primary silver mines are mines where silver is the main product, and they typically produce more silver than any other metal.

Secondary Silver Mines

Silver production from secondary mines, where silver is produced as a by-product of other metals, increased by 2.6 percent in 2021. Secondary mines typically produce less silver than primary mines, but they can still contribute significantly to the overall supply of silver.

Silver Demand

Silver demand is driven by a wide range of industries, including jewellery, electronics, solar energy, and medical applications. In recent years, the demand for silver in solar energy applications has grown significantly.

Silver in Electronics

Silver is a highly conductive metal and is used extensively in electronics. Silver is used in a wide range of electronic devices, including smartphones, tablets, and computers. Silver is also used in the production of LCD and OLED displays, which are used in televisions and computer monitors.

Silver Jewellery

Jewellery is the largest single application of silver, accounting for around 25 percent of total demand. Silver jewellery is popular due to its affordability, durability, and versatility. Silver jewellery is often used to create intricate designs and can be combined with other materials, such as gemstones and pearls, to create unique pieces.

Silver in Solar Energy

Silver is a critical component in solar energy production. Silver is used in the production of photovoltaic cells, which are used to convert sunlight into electricity. The demand for silver in solar energy applications has grown significantly in recent years, driven by the increasing adoption of solar energy.

Silver in Medical Applications

Silver is used in a wide range of medical applications, including wound dressings, catheters, and surgical instruments. Silver has natural antibacterial properties, making it an effective material for preventing infections.

Silver and the Mexican Mining Law Change Conclusion

In conclusion, the new mining law in Mexico could have significant implications for the global silver market.

Mexico is one of the world’s largest producers of silver, and the increased regulatory requirements, royalty system, and restrictions on foreign investment could make it more challenging for mining companies to operate, particularly smaller junior mining companies. This could result in a decrease in the supply of silver from the country, potentially driving up prices and exacerbating the ongoing silver squeeze.

Investors and stakeholders in the silver market should stay informed about the potential implications of these changes on the industry and monitor developments in the Mexican mining sector.

It remains to be seen how the industry will adapt to the new law, and whether the government will consider making any revisions to support the sustainability of the sector while also promoting responsible mining practices.