ted butler explains that falling demand for base metals leads to a buildup of inventories, which in turn results in mine closures. since 60% of all silver production comes as a byproduct from base metal mines, silver supply will shrink regardless of the price of silver:

Low prices have already resulted in a reduction in base metal production. However, if base metal inventories are growing significantly, this is proof of a continuing surplus. It means the world is still producing too much of these metals and must further reduce production. Industrial demand is falling faster than production is falling, causing the increase in inventories.

The prices of base metals have continued to decline sharply in the past two months. Copper has fallen in price by an additional 37%, lead by 45%, nickel by 25%, and aluminum by 33%. These are the price declines from only the end of October. Zinc prices have remained flat in this time span, but are still far below the cost of production for most miners. The new down leg in price over the past two months, coupled with generally sharply higher inventories dictates almost certain additional production cuts ahead. These base metal mine reductions mean less silver production.

How has silver fared in terms of inventory and price over the past few months compared to the base metals? That’s the point of this article - silver has moved in the opposite direction for both inventory and price. COMEX silver warehouse stocks, the accepted commercial inventory depository, have declined to the lowest level of the year, down around 10%. ETF inventories have grown slightly, but that’s due to investor demand, not because of surplus metal. Likewise, the price of silver has not declined since the end of October, and is up 10% or so.

http://news.silverseek.com/TedButler...