Silver's Peru problem threatens 15% of global supply as deficit deepens

Silver trades near $59.43 an ounce, up 50% from a year ago, as a supply deficit leaves no cushion for disruption in Peru, the source of one in six ounces.

"Peru's political risk is the kind that builds quietly rather than announcing itself, and it lands on a supply base that has no slack left," the Silver Engineer, a precious metals analyst, said in a note.

Peru produced about 131 million ounces of silver in 2025, or 15% of the 847 million ounces mined globally, according to Metals Focus and the Silver Institute. Most of that output is a byproduct of lead, zinc and copper mining, meaning it cannot easily be increased when silver prices rise. Mines built primarily for silver have fallen to just 26% of global supply, a record low.

The global silver market is forecast to run a sixth consecutive annual deficit of 46.3 million ounces in 2026, with mine production essentially flat at 844.1 million ounces, according to Metals Focus and the Silver Institute. Against that backdrop, any disruption in Peru — where $64 billion in planned mining investment faces potential protest under President-elect Keiko Fujimori — would compound an already tight supply picture.

Peru's Byproduct Dependency

Two features make Peruvian silver output especially fragile. The first is that most of it is a byproduct: mines dug primarily for lead, zinc and copper produce silver alongside those metals rather than as the main event. That means silver supply from Peru rises and falls with decisions made for entirely different reasons, driven by the economics of base metals. The second is that many of Peru's silver projects are run by small and mid-sized companies with thin balance sheets, making them more vulnerable to energy-cost spikes and road blockades that periodically disrupt the country's mining regions.

Peru issued an emergency decree in May to deal with an energy shortage, road blockades have periodically interrupted shipments of concentrate, and the program to formalize the country's large informal-mining sector has been extended into the end of 2026. A wave of protest over stalled projects would land on top of all of it.

A Squeeze That Compounds

There is a second-order effect that reaches beyond Peru's borders. The country is a major supplier of silver-bearing concentrate to China, which does most of the world's silver refining. A serious disruption in Peru would not just remove Peruvian ounces; it would tighten the raw material feeding Chinese refineries at the same time that China's own export controls are keeping more of its refined silver at home.

The gold-silver ratio sits near 69, at the high end of its historical range, a level long-term buyers read as silver being inexpensive against the larger metal. Silver remains well below its record of $121.62 set on Jan. 29, though it has swung between an intraday high of $121.58 and a low of $36.21 over the past 52 weeks, according to Forbes data.

The practical lesson is that silver's supply risk is concentrated in a handful of countries, and it is the kind of risk that builds quietly. Peru, Mexico and China, between them, dominate the world's mined and refined silver. None of them removed an ounce from the market in July. What they did was raise the political premium sitting over the supply that has to fill a persistent shortfall.

This article is for informational purposes only and does not constitute investment advice.