Modern Market Drives Demand for Ancient Commodity

Humans have had an eye for silver for over 6,000 years when our ancestors pried a bit of it out of the rocks in what is now the Republic of Turkey.  Even the Book of Genesis makes reference to worked silver and over the centuries silver has served both as ornament and instrument.  Silver mining has been a driving force in economic development throughout the world.  Total investment in physical silver runs about $4 billion a year in modern times.

A versatile metal, silver’s unique properties make it effective for a variety of applications from silverware to medicine to semiconductors.  Silver excels as an electrical and thermal conductor, making it attractive for all sorts of electrical applications such as capacitors, conductors and switches.  Solar panels are the most recent and perhaps among the most vital sources of demand for silver as a conductive ink to transform sunlight into energy. 

In 2019, global physical silver demand mounted up to around 990 million ounces.  Less than half of physical silver used each year  -  45% in 2019  -   ends up in jewelry, silverware and silver bullion coins or bars.  Silver coins and bars have shown good growth, but jewelry and silverware applications present steady demand at best.

The majority of silver demand  -  55% of physical silver demand in 2019  -  is put to use in electrical applications.  This was mostly in multi-layer ceramic capacitors, membrane switches and silvered films.  Solar panels and automobiles are typical final products with silver content. 

It is the solar panel application that is driving industrial demand for silver. The average solar panel uses about 20 grams of silver.  That is about 70% of an ounce.  It does not sound like much.  However, with millions of solar cells manufactured each year, in 2019 the photovoltaic manufacturers used 100 million ounces of silver.  This represents a whopping 11% of silver fabrication demand.

Solar panel manufacturing appears secure as a center of growth.  At the beginning of 2020, HIS Markit, an industry research firm, projected that global solar installations would increase 14% compared to total capacity in 2019.  The United States, where solar energy adoption has lagged other regions, installations were forecast to grow by 20% and make the U.S. the second largest solar market in the world.  Unfortunately, the coronavirus pandemic derailed the train.  The U.S. solar energy capacity additions are expected to decline sequentially by 30% by the end of 2020, with as many as 72,000 solar workers expected to lose their jobs. 

Yet few in the solar energy industry are fretting  -  at least few in the U.S. market.  In the residential market deductions in hardware costs have more than offset rising marketing costs in a socially distanced economy.  Indeed, by the end of the third quarter online sales methods appear to have performed well better expected.  Most utility-scale work has continued and a record pipeline may even deliver a record year in 2020 after all. 

 

Ironic is it not that one of the newest industries in the world, solar energy, is driving demand for one of the oldest industries in the world, silver.  In the next post we look at silver exploration and development companies as potential beneficiaries of strong demand for silver.

 

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.