Moody’s: Volatile Silver Prices Pressure End Users

New York, May 17, 2011 — Recent elevated silver prices have pressured companies that make or purchase products with silver but will not boost mining companies’ credit ratings, according to a new report by Moody’s Investor Service.

Despite silver spot prices more than doubling since September 2010 and reaching a historical high of $48.70 per ounce on April 28, 2011, then plummeting to $34 per ounce earlier this month, mining companies are unlikely to see upwards rating pressure, says the report. That’s because silver makes up a relatively small component of their overall metals exposure.

Silver’s price swings stem largely from investment activity and macroeconomic factors and will persist, according to the report. Compared to the larger gold market, silver’s smaller trading volume means market activity can have a greater magnitude of impact, resulting in steeper price volatility on a day-to-day basis, according to the report.

“We believe the run-up in silver prices through late April 2011 was not a result of fundamental supply and demand factors but rather fund and other investment activity, safe-haven sentiments, and other more macroeconomic drivers,” says Carol Cowan, a Moody’s Senior Credit Officer. “Global markets remain concerned over sovereign-debt levels, political unrest, inflation, economic growth levels, and the strength of the U.S. dollar.”

However, the price increases are unlikely to greatly impact the top producing companies as other minerals and metals are larger drivers of earnings performance and cash-flow generation. Producers will enjoy a nice margin impact from the silver price increase but Moody’s does not consider silver prices about $40 per ounce as sustainable.