Silver prices have advanced roughly 16% in August to $66.56 per ounce, absorbing hawkish policy signals, before easing to $63.96 on September 1 as rate-hike expectations firmed. The rally, however, masks a structural supply challenge: the majority of mined silver is produced as a byproduct of other metals, particularly lead and zinc, which now face declining output and rising costs.
Global mine production of zinc fell 2.6% and lead declined 3.0% in the first half of 2026, according to data from the International Lead and Zinc Study Group (ILZSG). The declines were concentrated among major producers, including Peru’s Antamina, Sweden’s Garpenberg, and the U.S.’s Red Dog, with Australia’s Lady Loretta mine closing at the end of 2025. The reductions reversed prior growth trends, as the same data series had recorded 1.1% growth through May.
The supply squeeze is further evidenced by record-low treatment charges for zinc concentrate in China. Spot treatment charges for imported zinc concentrate fell to near minus $117.50 per dry tonne in August, according to the Shanghai Metals Market index, compared with an annual benchmark of $85. The negative charge indicates smelters are paying miners to process ore, shifting margins toward byproducts like silver. The ILZSG does not measure silver output directly, but applying these production declines to last year’s silver base suggests a potential reduction of roughly 7 million ounces annually—about 0.83% of the 844.1 million ounces forecast for 2026 by Metals Focus and the Silver Institute.
The structural imbalance in silver supply remains intact. The market is projected to face a sixth consecutive annual deficit of 46.3 million ounces in 2026, according to the World Silver Survey. However, the mechanism by which higher prices typically resolve shortages may be constrained. Roughly 74% of mined silver is produced as a byproduct of lead and zinc operations, where production decisions are driven by the economics of those primary metals rather than silver prices. This decoupling limits the responsiveness of silver supply to price signals.
Western inventories have yet to reflect the tightening. COMEX registered silver stocks rose over the past month, while London vault holdings increased for a third consecutive month, reaching 28,213 tonnes at the end of July. The September futures contract reached first notice day without visible stress, indicating that physical market tightness has not yet materialized despite the supply constraints in ore production.
