Silver – An Industrial Metal Competing With Investment Demand for Decreasing Supply
Silver today is primarily an industrial metal. Prior to the mid 1960’s, silver was also a monetary metal as it was used to mint coins for every day circulation in countries including the United States, Canada, Great Britain, Australia, France and Switzerland. In 1964, the last year that 90% silver coins were produced for everyday use, the U.S. Mint used about 550 million ounces of silver to mint dimes, quarters and half dollars. Today annual global silver mining production is about 850 million ounces.
With the removal of silver from coins in all of the countries listed above, demand for silver was reduced dramatically and at the time was used primarily for photography.
Ten years ago industry constituted about 70-75% of overall demand for silver. Over the past ten years, demand for silver coins, rounds and bars and silver bullion to fund exchange traded funds has increased from constituting about 5-8% of overall silver demand, to nearly 25% of overall demand. The increase in silver for investment purposes has reduced industry demand to close to 50% of overall demand. Industrial demand for silver is also growing.
Silver Mining Production Grew In 2015
In 2015, according to Societe Generale and the CPM Group, global silver mining production grew. These entities predict, however, that global silver mining production will be down sharply in 2016. The Mexican government announced earlier this year that its world’s leading silver production increased in 2015, but warned that it would decline in 2016. Demand for silver is projected to exceed current supply in 2016. The demand for silver is growing at a time when supply is not.
About 85% of silver supply comes from primary and secondary mining output, the remainder from scrap silver. Unlike gold which is hoarded, much of industrial silver is thrown away after use in electronics, reducing the potential for meaningful stockpiles to develop. It is this dynamic that makes silver mining important for industries relying on silver because it is the only reliable source of silver.
Current Industrial Uses for Silver
Silver is considered an essential metal in the following industries:
The solar energy market has been growing as an alternative to fossil fuels. A large portion of that demand comes from China, Germany, India and the United States all of which offer government funding or subsidies for the creation of solar energy. The photovoltaic cells in solar panels use a silver based paste. According to the Silver Institute, the amount of silver required to satisfy solar panel manufacturers was about 7 million ounces in 2005 and is expected to top 100 million ounces in a few years.
China has invested heavily in solar power as it searches for alternatives that can help reduce its air pollution while satisfying its growing energy demands. China consumes the most energy of any country in the world but is second to Germany in solar power generation. China is already the world largest solar panel exporter. According to Reuters GFMS data, 2005 China used less than a million silver ounces in its solar industry in 2005. That amount grew to over 38 million ounces in 2012.
India has also initiated an ambitious solar energy program that according to Scrap Monster, will required 50 million ounces a year to meet its solar power demands. One large Indian solar panel plant will require twenty million ounces of silver a year during its construction phase.
Silver conducts electricity better than any metal. Because of its conductivity properties it is a component in electronics. The Silver Institute estimates that each cell phone contains about .05-0.25 grams of silver. Slightly larger amounts of silver are used in the manufacture of PCs/laptops and tablet computers. These small amounts add up as silver used in the production electronics of all types amounts to well over 200 million ounces of silver a year.
Photography was once one of the major industrial uses for silver but digital photography has reduced the need for silver in the photography industry.
Silver is used in medical devices and water filters because of its anti-microbial properties. Silver is also used to produce of ethylene oxide, a compound used in agricultural, medical and other industrial products. The Silver Institute estimates that demand from ethylene oxide producers is about 8 million ounces a year.
A slow down in global economic growth may impact demand for silver for industrial purposes. Demand for solar panels, however, may increase even during a period of stagnant economic growth. Slow economic growth and central bank reaction to slowing growth in the form of stimulus, quantitative easing and negative interest rates have and are expected to continue to have a positive impact on the demand for silver for investment purposes.
This article by BGASC is not, and should not be regarded as, investment advice or as a recommendation regarding any particular course of action.