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Silver's Solar Demand Doesn't Look Very Bright - Capital Economics

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(Kitco News) - Silver prices are suffering from lackluster investor demand, and one research firm is warning that industry demand could be weaker than many are expected, especially within the solar sector.

In a report Thursday, Simona Gambarini, commodities economist at Capital Economics, said that her firm is maintaining its bearish forecast on silver, looking for the price to end the year at $15.50 an ounce, down almost 5% from current prices. May silver futures settled the week at $16.272 an ounce, down more than 2% from the previous week.

Gambarini warned that investors, depending on increased industrial demand in silver, could be faced with an unpleasant surprise. She said that silver demand, particularly in the solar power sector is not as strong as many believe as the industry will start thrifting the precious metal.

“We think that silver will eventually be displaced by cheaper metals,’ she said. “[Silver] is still one of the most expensive components in a solar panel, accounting for 10-15% of the total cost. What’s more, its price volatility has exposed manufacturers to huge fluctuations in their bottom line.”

Gambarini noted that research has shown that cheaper aluminum can replace silver. However, she added that silver would not completely disappear from the solar industry. The metal will continue to benefit as solar energy capacity is expected to average 74 gigawatts within the next 10-years, up almost 100% from 39GW capacity created between 2010 and 2016.

“Overall, we expect demand for silver in solar applications to continue to increase over the next few years, but average annual demand will be only 4% higher in 2017-25 than in the previous decade, despite expectations of an upsurge in PV capacity,” she said. “Further down the line, we think that there is a risk that silver usage in the solar industry will be completely displaced by cheaper metals, such as aluminum or copper.”

Gambarini’s forecasts are at odds with other industry projections. The Silver Institute, in a report in mid-January, said silver demand in photovoltaic cells could hit a record after the sector consumed 92 million ounces of the precious metal in 2017.

But it’s not just silver’s industrial demand that will weigh on prices. In the near-term Gambarini said that an impending interest rate hike and a more hawkish Fed will keep investors away from the precious metal.

“Given our view that the US central bank will hike interest rates four times this year, we think that the price of silver will fall back,” she said.

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.
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