I disagree, more since Apple acquired Beats, since now they will focus on music streaming users don't need that much storage, but if I have large storage for music it's less likely I'll use streaming since it's more likely I have all my favorite music with me.
On the other hand, previously was a solid rumour on HD music this requires 6-10 times the storage per title than non-losless music, this scenario it's plausible for Apple to axe the 16GB model since also 32gb will feel like 8gb on lossless hd audio.
Also consider how cheap is flash memory now, apple could easily sell the 32 GB model at 16gb price point and assume the extra (if any) cost compared with previous year.
So I give you a 50:50 chance on the continuity of the 16GB model at least this year.
I see. I currently, like you, store all my music on my devices and don't stream- I'm surprised how phones have stayed around the 16-64GB range for a while now. I'd personally like to see phones move up towards the 64GB-256GB range, but pricing is a issue for flash storage exceeding 128GB.