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Silver prices will spike as record solar demand strains silver supply through 2026 - Metals Focus

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(Kitco News) - Industrial demand for silver will continue to grow, putting pressure on supply and prices and forcing substitutions by manufacturers, according to analysts at Metals Focus.

“Over the past decade, industrial silver consumption has grown steadily, raising its share of total demand to around 50%, chiefly through help from the vigorous development of electronic and electrical related applications,” the analysts wrote in the latest Precious Metals Weekly report. “In 2021-22, silver industrial fabrication hit successive record highs, with volumes in 2022 16% higher than the 2010 total.”

These highs were driven by the rapid growth of green energy applications such as photovoltaics (PV) and electric vehicles (EV). “This growth in turn helps explain why, in the foreseeable future, the silver market is likely to face a persistent structural deficit,” they write.

Following record PV installations in 2022, Metals Focus projects another new high for installed capacity this year.

“After breaking the shipment record again in the first half of this year, we have seen that many institutes have raised their forecasts for the next few years,” they said. “For example, S&P Global raised its forecast for 2023 by 30 GW to 360 GW, and PV Infolink also expected newly-added capacity to reach 351 GW or more in its updated report. Bloomberg New Energy Finance revised its estimation of installed capacity to 346 GW, up from 316 GW at the start of this year.”

“In the latest global PV market outlook released by Solar Power Europe, the installed capacity forecast for this year has increased significantly by 33% compared with the previous version, and the forecast for 2024 has also increased by 42%,” they added. “As for the medium term in 2025 and 2026, the adjustments are even higher, at 47% and 54%, respectively.”

In the recent World Silver Survey published by Metals Focus in March, the baseline for photovoltaic demand in 2023 was production capacity of 393GW and installed capacity of 338GW, which the analysts write is “roughly in line with the adjusted figures of these institutes,” but the dramatic increases in others’ forecasts through 2025-26 mean that “an additional 900t and 1,500t of demand may be added in 2025 and 2026 respectively if silver replacement does not occur.”

Silver paste is the second-biggest cost component for PV manufacturers after silicon wafers, representing up to 9% of the total cost of PERC cells, up to 12% of TOPCon and up to 16% of HJT cells. “We are witnessing a rapid migration of solar technology from P-type cells to N-type TOPCon and HJT,” they write. “Although the industry actively improves the manufacturing process and reduces the unit silver loading, the substantial increase in newly-installed capacity will put clear pressure on the market balance.”

While manufacturers are trying different designs to reduce their silver consumption and are also substituting with silver where possible, “the adoption rate for alternative metals remains low due to high production line construction costs.” They say that most manufacturers remain profitable when silver is trading below $25 per ounce. “However, the concern is that if the silver price rises to above $30/oz, it may indeed put pressure on manufacturers, and there will be incentives to promote alternative metal solutions as their gross margins are generally lower than 10%.”

The analysts say that the global energy crisis and support from policymakers to move away from carbon-intensive energy consumption will maintain the uptrend in green energy technologies. “While the explosive demand is projected to make the silver supply situation tougher and may cause price volatility as it attracts speculative buying, most industrial players have prepared solutions in advance through technological innovation,” they write.

“Nonetheless, silver is still one of the best cost-performance options in industrial conductive applications today, and the bright outlook for long-term demand remains unchanged.”

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.