Burgeoning green economy may lead to a structural silver deficit - report
Welcome to Kitco News' 2022 outlook series. The new year will be filled with uncertainty as the Federal Reserve looks to pivot and tighten its monetary policies. At the same time, the inflation threat continues to grow, which means real rates will remain in low to negative territory. Stay tuned to Kitco News to learn from the experts on how to navigate turbulent financial markets in 2022.
(Kitco News) - Metals Focus reported today that silver will play a crucial role in a burgeoning green economy and that rising demand has already put silver market into a physical deficit, which has a strong likelihood of becoming structural.
According to a report, the star of silver use in the green economy over the last decade has been photovoltaics (PV), with PV installations have grown massively over the last decade, up from a modest 16GW in 2010 to 158GW in 2021.
The consultancy said that much of this growth has been driven by the push to reduce CO2 emissions, and that despite a major cut in the amount of silver used on each cell, silver demand increased substantially between 2010 and 2021.
"We estimate that a typical cell in 2021 would only have contained around 20% of the silver used in 2010. Despite that thrifting and substitution, we estimate that silver in PV has risen from around 5% of total silver demand in 2010 to over 10% by 2021," Metals Focus added.
The consultancy noted it initially expected that this would translate into slight growth in silver use in 2022, but recent forecasts suggesting much higher PV installations, perhaps as much as 200GW.
If this were to occur, Metals Focus said that PV's silver demand in 2022 would rise by well over 10%. Thereafter however, end-use could plateau as ongoing thrifting counters still high installation figures plus the bonus from the replacement of end-of-life cells.
While silver demand in PV might start to plateau, the opposite is true for silver use in the automotive industry, the authors of the report continued, and much of this demand growth will stem from the recovery in vehicle production as the chip crisis eases, but total silver use is forecast to rise at a much stronger pace than mere vehicle numbers.
|Silver price 2022: Here's how silver can outperform gold as it plays catch-up next year|
"Some of this is due to factors unconnected to the green economy, such as the growing adoption of complex infotainment systems or new relatively equipment such as reversing cameras and lane departure warning sensors. However, battery electric vehicles (BEVs) require much greater amounts of silver than do internal combustion engine (ICE) vehicles," Metals Focus found.
These areas includes the two electrodes per battery (of which there can be thousands) and the powertrain's wiring. The latter needs silver (typically in a 70:30 copper:silver mix) because of the high voltages involved.
Importantly, Metals Focus said that its current estimates point to silver use in PV being roughly twice the size of automotive and that the bonus generated by vehicles being BEVs accounts for around 10% of automotive use.
This relative importance however will rapidly change in the next few years as PV plateaus and as BEVs numbers surge.
"It would not surprise therefore if this BEV 'bonus' reaches 20% in a few years and that total automotive use becomes similar in scale to PV demand," the authors of the report added.
It is important to note that Metals Focus estimates for silver use in PV only account for silver in the cell and in automotive for silver in a vehicle. However, that is not the totality of their silver needs. For instance, some silver is used in BEVs' charging facilities and some in PV's connections and switches.
Moreover, other renewable energy sources, such as wind and tidal power, also use silver in various areas, as does the low carbon nuclear power industry.
According to a report, all such uses are small however and, combined, these might be equivalent to around 10% of PV demand.
In conclusion, Metals Focus said that - uniquely for the four main precious metals - silver saw a deficit last year and is forecast to remain in deficit this year.
"While the switch from a surplus in 2020 was far from solely driven by the green economy, silver would have been in surplus in both 2021 and 2022 without this," the consultancy pointed out.
The fact that green demand is forecast to grow strongly in the next few years only adds to trends in other supply and demand segments. As a result, Metals Focus expects that silver deficit to grow in the coming years.