Commodities Research Analysis: Silver Market Structural Deficit
Date: February 12, 2026

Current Market Landscape
The silver market has entered its sixth consecutive year of structural deficit in 2026. After a historic rally in January 2026 that saw prices briefly touch 120 USD per ounce, the market is currently stabilizing in the 80 USD range. This high-price environment is primarily driven by a persistent supply-demand imbalance that has existed since 2021.

Supply and Production Constraints
Total global silver supply for 2026 is forecast at 1.05 billion ounces, representing a modest 1.5% increase year-over-year.
Mine Production: Estimated at 820 million ounces for 2026. While primary silver mines are expected to stay flat, growth is coming from by-product silver in gold mines, such as the Pueblo Viejo (Dominican Republic) and Salares Norte (Chile) projects.
Recycling: Forecast to exceed 200 million ounces for the first time since 2012, as high prices incentivize the liquidation of silverware and industrial scrap.
Operational Bottlenecks: Major producers like Pan American Silver are reporting increased All-In Sustaining Costs (AISC), projected at 15.75 to 18.25 USD per ounce for 2026. Bottlenecks are emerging due to scheduled plant maintenance at key sites like San Vicente and Jacobina, and the necessity of increased sustaining capital for aging infrastructure and tailings storage.

Inventory and Exchange Levels
Physical tightness is reaching critical levels across global exchanges, as seen in February 2026 data.
COMEX: Registered inventories (available for delivery) have plummeted to approximately 102 million ounces. With March 2026 open interest standing at over 366 million ounces, the exchange faces a significant delivery coverage risk.
LBMA (London): Vault levels were reported at 27,729 tonnes at the end of January 2026. However, the "free float" is estimated to be much tighter, between 200 and 300 million ounces, as large portions are held by ETFs and private investors.
SGE/SHFE (China): Shanghai inventories have seen massive depletions. Recent reports indicate the SHFE holds only 318.54 metric tons, while localized spot prices in China remain at a significant premium (90 to 110 USD) compared to Western paper prices.

Demand Drivers
Despite the 2% projected decline in industrial fabrication (650 million ounces) due to thrifting in the solar PV sector, demand remains robust.
Investment Demand: Physical investment is forecast to rise 20% to 227 million ounces in 2026.
New Technology: Silver consumption in AI-related data centers and electric vehicle power electronics is partially offsetting the reduction in traditional photographic and jewelry demand.
Net Deficit: The Silver Institute projects a 67 million ounce shortfall for 2026, following a 117 million ounce deficit in 2025.

Conclusion
The silver market is currently characterized by a "paper vs. physical" disconnect. While leveraged selling has caused a price retracement from January peaks, the underlying depletion of exchange-registered stocks suggests that physical availability will be the primary price driver for the remainder of 2026. The high risk of delivery defaults in March contracts underscores the ongoing scarcity.
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