Most silver market players have long since resigned
themselves to the fact that the white metal’s average price for the year
will likely be significantly lower than was initially expected — back
in April, HSBC (NYSE:HSBC) cut its 2013 silver outlook to $26 per ounce from $33, while earlier this month Canaccord Genuity reduced its 12-month forecast to $23 per ounce from $32.50.
However, if recent reports from China and Japan are to be believed,
silver may be poised to benefit from an unexpected source of demand: the
solar power industry.
China and Japan step up
Though silver is perhaps best known as an investment tool, it is not
without other sources of demand, one of which is the solar industry.
In an
article published
last week by Casey Research, Jeff Clark, senior precious metals analyst
at the firm, notes that while photovoltaic technology, the backbone of
the solar industry, did not begin registering on silver demand charts
until the turn of the millennium, the amount of silver consumed by solar
panel makers has risen approximately 50 percent per year since that
time.
Currently, it accounts for 5.6 percent of all industrial silver use,
but, as mentioned, two factors mean that amount may be set to increase.
The first is the fact that on July 4, China’s State Council said it
will stand behind a plan, originally put forward by the nation’s State
Grid, to raise China’s solar generating capacity to 35 gigawatts (GW) by
2015. That is 67 percent higher than the previous target of 21
gigawatts (GW) and will mean a yearly addition of 10 GW from 2013 to
2015, according to Clark.
Second, Japan, China’s western neighbor, will increase its solar
generation capacity by about 5.3 GW this year, David Franklin and David
Baker state in a Sprott’s Thoughts
report.
Also this year, the country’s domestic solar power market is expected
to reach $19.8 billion, meaning that it will pass Germany as the world’s
largest solar market.
Potential market impact
The key question, of course, is exactly how much impact these factors will have on the silver market as a whole.
Franklin and Baker give a clear outline of their likely effects,
stating that as per information from the Silver Institute, making 1
megawatt of electricity requires up to 2.8 million ounces of the white
metal. If China and Japan end up increasing their solar generation
capacity by as much as they currently plan — a combined total of about
27 GW — together they will require around 91 million ounces of silver.
That’s up to 11 percent of global mine supply by 2012 numbers, a fairly
sizeable amount.
Looking longer term, they point out that silver used in solar panels
cannot be recycled; once it is used, it is gone forever. That means
solar generation has the potential to put ever-increasing pressure on
the silver market, particularly if other countries follow China and
Japan’s lead in upping their solar generation capacity.
What’s an investor to do?
Franklin, Baker and Clark all appear to agree that the silver market
could benefit significantly if all goes as expected in China and Japan.
However, those who are not yet convinced should consider watching future
silver price forecasts to see whether they take the two countries’
plans into account; Franklin and Baker state that so far no 2013 silver
price forecasts have incorporated these announcements.
Investors who are ready to leap into the market might take a leaf out
of Clark’s book — he finishes his article by emphatically advising
investors to “buy silver now.”
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