Some of the major industries that continually demand silver include jewelry production, cars, electronics, and solar panels. 2021 saw an impressive rebound in demand for the metal after the detrimental influence of the pandemic, but last year was when all demand categories surged significantly. Industry demanded 5% more silver than the year before; physical bullion purchases increased by 22%; jewelry demand jumped by a huge 29%; and silverware by as much as 80%. The latter two demand sources were chiefly located in India, where demand got a major push due to an improvement in incomes.
Of all demand sources, “the largest segment of silver demand is industrial, [which equates] to almost 50% of total demand”, explained Nicky Shiels of MKS PAMP near the beginning of 2023. In fact, says Shiels, industry is demanding so much silver that it’s putting a strain on supply, which may come short by 100 million ounces in the next five years. Mines struggle to churn out the quantities of silver that are needed and production actually dropped slightly last year. In particular, the lead and zinc mines in China and Peru that produce silver as a byproduct came out with much less of the precious metal.
In this article, we’ll speak about the prospects for continued demand growth from green industry, and what this might mean for silver prices. We’ll also look at how anti-carbon-dioxide legislation in the US could impact the EV market, which is a big demand source for silver. If you plan to engage in CFD commodity trading with silver, join us for a useful check-in on the industry.
“Solar PV is now the biggest industrial usage of silver” wrote analyst Chen Lin in March this year, referring to the photovoltaic power-producing technology that made up as much as 12% of global silver demand in 2022. Surprisingly, according to the IEA (International Energy Agency), solar PV is growing so much that will be outshining coal, hydropower, and natural gas in terms of power produced by as soon as 2027.
These days, generating 100 gigawatts of power from a Solar PV requires about 50 million ounces of silver, so the PV growth portends well for silver prices. The other material that may benefit in the commodity trading arena is tellurium, which is also needed in order to make solar panels. Demand for both metals is expected to rise dramatically in the next several years. It’s true that developers are trying to make solar panels more silver-economical, but that doesn’t necessarily mean less silver will be needed. The reason for this is that the more cutting-edge solar technologies may require more of the metal than their predecessors.
To make an electric vehicle (EV), you need silver for almost every electrical connection. The global momentum to clean-air technologies and away from internal combustion engines, therefore, looks bullish for silver. In April, US President Joe Biden gave the trend even more of a push, when he put forward plans for drastic restrictions on vehicle carbon dioxide emissions. If his proposal is approved, light vehicles in the US will have to cut down on the carbon dioxide they spew out by a giant 56% in less than a decade. This could mean that two-thirds of American-made cars will be electric by then. EVs actually use a wide range of metals aside from silver, including manganese, copper, lithium, cobalt, and nickel.
The Terrain Ahead
Solar installations and EVs are set to demand so much silver that supply looks like a big question-mark. A study last year found that up to 98% of the world’s current silver inventories could be eaten up by solar panels before the year 2050. Randy Smallwood of Wheaton Precious Metals says that “We hit peak silver supply back about five, six years ago”, and that production has been dropping since then. Smallwood agrees with analysts who think silver could go up to $30 an ounce in 2023, but he believes they won’t linger at that high level but rather “stay comfortably over $20 per ounce”.
Commodity trading is like trading in the other financial markets in that the future is never clear. There is a scenario possible that would look less rosy for silver, namely one in which a recession sets in, muting industrial demand. Especially “If the Fed continues to tighten, and if inflation falls away more rapidly than the market expects, that will be a headwind for silver”, in the opinion of Janie Simpson of ABC Bullion. The reason why a cooldown in inflation could be bearish for silver is that the precious metal is usually bought en masse in times of high inflation, when people seek a means of preserving the value of their money.
When you engage in commodity trading on iFOREX’s outstanding custom-made platform, remember Simpson’s warning and keep an eye on the language of the Fed about their plans for interest-rate policy going ahead. Also, keep a firm eye on greenhouse-gas legislation around the globe.