Silver Structural Deficit: Six Years of Drawdowns and No Supply Mechanism to Fix It

July 16, 2026

The silver structural deficit has run every year since 2021, and the mechanism that would normally correct it does not exist. According to the World Silver Survey 2026, published by the Silver Institute and Metals Focus in April 2026, a cumulative 762 million ounces has been drawn from above-ground silver inventories since that first deficit year. That is roughly equivalent to one full year of global mine output, consumed from existing stocks over five years to bridge the gap between supply and demand. The deficit is now entering its sixth consecutive year, with a projected shortfall of 46.3 million ounces in 2026.

What separates this from a typical commodity cycle is the supply-side structure. Around 70 to 80% of mined silver comes as a by-product of copper, zinc, lead, and gold operations. Price signals do not trigger new silver mines the way they do in primary commodity markets. Production is anchored to investment decisions made for other metals entirely. Silver prices can rise substantially without generating a meaningful supply response, because the producers are not primarily in the silver business.

How the Silver Structural Deficit Has Built Since 2021

The market flipped into deficit for the first time in six years in 2021. Between 2017 and 2020 it had run a cumulative surplus of 132 million ounces. The shift was abrupt. In 2022, demand surged to a record 1.242 billion ounces and the deficit blew out to approximately 237.7 million ounces, the largest on record, per the Silver Institute’s World Silver Survey 2023. Annual deficits in subsequent years were narrower but persistent, with the 2025 deficit recorded at 40.3 million ounces.

The cumulative 762 million ounce drawdown is the relevant number for understanding physical market tightness. It measures how much metal has been pulled from vaults, exchange inventories, and dealer stocks to satisfy demand that production alone could not meet. COMEX registered silver inventories have fallen roughly 75% since 2020, from approximately 346 million ounces to around 88 million ounces as of February 2026.

In October 2025, unencumbered silver in London vaults fell to a historic low of 17%, triggering a physical liquidity squeeze that sent lease rates spiking. That event was not caused by a supply shock. It was caused by years of structural deficit eroding the available buffer.

Why Industrial Demand Is the Foundation No Price Correction Can Remove

Silver’s industrial demand is not price-elastic in the way that jewellery or investment demand is. Solar photovoltaics, EV components, AI data centre infrastructure, and grid electronics all require silver and cannot simply reduce their consumption when prices rise. The Silver Institute notes that industrial fabrication will decline approximately 2% in 2026 primarily due to thrifting in the photovoltaic segment, where manufacturers have reduced silver loadings per panel. But that thrifting has limits, and the underlying demand trend remains structurally upward.

Investment demand has absorbed the slack created by softer fabrication categories. Even as jewellers and silverware makers cut back under the weight of elevated prices, investment inflows have kept the overall balance in deficit. This creates a market where reduced fabrication demand and higher prices are not closing the gap. They are just shifting who is consuming the metal. Where that investment bid actually sits, and what physical silver investment demand in coin and bar form is doing, runs underneath the headline balance.

The non-obvious implication is that tighter physical markets can persist at prices that appear high by historical standards, because the investment bid does not respond to price the way an industrial buyer might. When physical tightness and investment demand coincide, the margin for error in above-ground stocks is very thin.

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The By-Product Structure: Why Silver Supply Cannot Self-Correct

The fundamental constraint on silver supply is the by-product relationship. A sustained silver price above USD 40 per ounce does not cause a new silver mine to be permitted and built, because silver is rarely the primary economic driver of a mine decision. The mine gets built because copper is economic, or zinc is economic, or gold is economic. Silver comes along as a revenue credit. That puts silver’s supply outlook downstream of a copper decision cycle with constraints of its own, where the copper investment gap turns less on the availability of capital than on whether projects are financeable at all.

Primary silver mines do exist: Fresnillo in Mexico, Coeur Mining in the US, and a handful of others operate with silver as the primary product. But they represent a small fraction of global silver production. Increasing that share would require either new primary discoveries or substantially higher silver prices sustained over a period long enough to justify greenfield development, typically ten years from discovery to production.

Mexico, which accounts for approximately 23% of global silver mine output, recorded a 3% decline in North American mine output to decade-low levels in 2025, driven by operational and policy challenges. The world’s largest silver-producing country is contracting. There is no meaningful pipeline of new primary silver production to replace that. The pattern is not unique to silver. Codelco’s Q1 2026 production paired record profit with falling output, the same signature of a dominant producer unable to convert price into volume.

Six Consecutive Deficits: Regime Change, Not a Cycle

Six consecutive deficits is not a cyclical pattern. It is a structural condition. The silver market has moved from a phase of managed surpluses to a phase of persistent drawdown, and the mechanisms that ended previous deficit periods, either new mine supply or demand destruction, are not operating as expected.

The Silver Institute projects that structural deficits will gradually erode beyond 2026 as some rebalancing occurs. But even in a narrowing deficit scenario, above-ground stocks continue to be drawn down. A smaller deficit does not put metal back. It just slows the rate of depletion. The available unencumbered silver in the London market is already at historically thin levels.

For investors, the relevant question is not whether silver will return to surplus, but at what price and on what timeline. The answer to both depends heavily on whether the by-product structure of silver mining changes, and there is little evidence that it will over the next five years.

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Kamoa Capital is not licensed and does not know your circumstances. Nothing here is financial, legal or tax advice – seek professional advice and read any PDS before acting. We aim for accuracy but make no guarantees and accept no liability. Views are opinions only and may include forward-looking statements that may not occur.