Solar Demand Drives Silver Prices Higher

By: Anthony_David

Fears of a declining industrial demand for silver following the financial problems in Europe and the US kept silver prices at modest levels during early August. Prices did rise in mid-August improving the outlook for the precious metal. The risk of increasing inflation in China leading to a slower economic growth in the country is another concern for the global silver industry.

In the last decade, industrial consumption of silver grew by 39% from 349.7 million ounces in 2001 to 487.4 million ounces in 2010. Industrial demand still accounts for 50% of the global silver demand and that is expected to reach 70% over the next decade given the large increase in applications that require silver.

Silver’s properties make it an excellent choice for many applications, especially in the electrical and electronics sector. Silver is the best choice of metal for electricity conduction, thermal heat transfer and light reflection. It is also a popular alloy component, catalyst and lubricant. Advances in the clean tech and renewable energy market, particularly in the solar photovoltaic (PV) industry, are fueling the demand for the metal.

Silver market expert David Morgan expects silver prices to rally at around $45 per ounce in Q4 of 2011. In fact, based on rising industrial demands, he expects silver prices to reach $100 per ounce in the long-term.

During a recent interview with Hard Assets Investor, Stephen Leeb, chairman and CIO of Leeb Capital Management, said that he firmly believes China’s demand for silver from its solar panel industry will push silver prices to above $100 per ounce. China currently spends almost $1 trillion on alternative energy and the country has a 50% share of the global solar market. So far China has been developing and acquiring polysilicon faster than any other nation and soon it will be silver’s turn. Leeb believes that most investors and analysts are not paying enough attention to China’s fast growing solar PV industry.

In ‘The Future of Silver Industrial Demand’, a recent study commissioned by the Silver Institute, research consultancy GFMS said, “The rise in solar power is arguably the most significant development for silver demand in recent years. This year, demand is expected to reach nearly 70 million ounces, an increase of around 40% year-on-year.”

According to solar market research group Solarbuzz, the US market for solar PV applications is expected to account for 12% of the global market by 2015, a sharp hike from the current level of 5%. Demand from the Asia Pacific market—comprising Australia, China, India, Japan, and South Korea—is expected to grow from the current 11% to almost 25% by 2015. In fact, the sector could cause silver consumption to rise from the 50 million ounces recorded in 2010 to 100 million ounces in 2015. China currently purchases the highest quantity of silver, and demand in China and India is expected to grow by almost 30% this year. Manikbhai Shah, a silver retailer in Mumbai said, “China imported 245.6 metric tonnes of silver in February. The figure was so close to the 260.6 metric tonnes that the country imported last February and it showed that China was willing to shell out money for the white metal at over $30 per ounce.”

Stock analyst Jeb Handwerger reaffirmed that silver’s demand rises from two sources – industry and investment. Demand is at an all time high but supply is declining leading to a tight market. Pure silver is rarely produced by itself, it is usually a byproduct of other metals which is why demand is outpacing supply. However, the importance of silver cannot be denied and Handwerger expects silver prices to reach new highs before the end of the year.

By Anthony David

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