Clean-tech demand gave silver its shine but the question is what happens next
Silver’s booms and busts are typically turbocharged by excitable investors. Sober industrialists bear their share of responsibility, though. It’s worth reflecting on that, given the 67% run-up in spot prices so far this year. The precious metal’s surge looks to be weakening as speculative enthusiasm subsides: It fell 7.1% last Tuesday. But anyone hoping for a quick return to levels below $30, which looked like a price ceiling until about 12 months ago, may be in for a long wait.
That’s because silver is an industrial metal in all but name. Coin and bullion investors consume barely a fifth of annual production, with jewellery and cutlery adding another fifth. The remainder goes into factories, where it has an array of uses.
Many of silver’s most notorious price spikes have been driven by this industrial demand. In 1979, three Texan oilmen managed to corner the market, driving up prices 62% between Christmas Eve and the first trading day of 1980 before a margin call sparked a wider financial panic. (That incident was the inspiration for the classic festive commodities comedy, Trading Places.)
It wasn’t pure speculation, though. Just as every conspiracy theory contains a grain of truth, every financial bubble contains a puff of genuine demand. The rise of colour photography and simple electronic flashbulbs in the 1970s meant that people were taking more pictures than ever before—a boon for sales of silver-heavy photographic emulsion. Silver consumption for photography in the US rose nearly 60% between 1969 and 1979, until it took up close to half the market.
The same thing happened in 2011, when prices surged almost all the way to $50 per ounce as the nascent boom in solar power drew attention to a fresh usage for the metal. Silver is the best electrical conductor there is, and an ultra-thin paste printed onto the back of a photovoltaic cell ensures the maximum amount of electricity is generated.
That bubble popped as panel factories got highly efficient at minimizing their usage. Silver consumption per watt of installed solar capacity this year looks to be running at barely 10% of where it stood in 2011. Unfortunately for manufacturers, panel prices have fallen by a similar amount, so precious metals are once again becoming a crippling expense.
At current prices, silver has overtaken the aluminium and glass in the frames and the polysilicon that generates the power to become the single biggest cost element of a solar panel, amounting to about 17% of what you spend, according to BloombergNEF. Making matters worse, we’ll install nearly six times more panels this year than were connected in 2019. No plausible efficiency savings would be sufficient to offset such an increase.
There’s also a host of other applications hungering for more silver as the world switches from fossil fuels to electrical energy. Many of the thousands of switches, connectors and chips in our appliances and vehicles carry an infinitesimal load of silver. A battery-powered car uses about twice as much as one with an internal combustion engine. Even AI data centres are sucking up their share.
Supplies will probably struggle to keep up. The vast silver deposits of the Andes and Sierra Madre, which drove the Spanish conquest of the Americas, are increasingly tapped out.
About three-quarters of the world’s silver these days comes instead as a by-product from deposits producing zinc, lead, copper or gold. Those supplies, too, are struggling. Mining of lead and zinc peaked a decade ago, when lead-acid batteries were more popular than lithium-ion ones for e-bikes, and galvanized steel for use in China’s massive construction industry was booming.
Glencore’s silver production has fallen by about half since 2016, in line with declines in lead and zinc. In Australia, South32 Ltd’s Cannington mine, once the world’s largest for lead and silver, may close by the early 2030s. One of the world’s largest lead smelters, the Port Pirie facility owned by Trafigura Beheer, is only running now thanks to a bailout by Canberra earlier this year.
Much of silver’s recent performance has been driven by the parallel run-up in gold, and its long-standing reputation as the cheaper bullion. Even when those speculators are gone, however, we’ll be left with a market where demand has outstripped supply for five straight years.
Miners may need prices of at least $30 per ounce to stop output from falling further. At some point, the magic of industrial efficiency will allow our electrical economy to use silver even more sparingly. For the moment, however, this boom will keep running on solar power. ©Bloomberg
The author is a Bloomberg Opinion columnist covering climate change and energy.
Post Comment