After touching a price of $50 per ounce, silver prices have largely been confined in the range of $32-36 per ounce (1 troy ounce equals 31.1 grams). While it is difficult to predict which way silver prices are headed in the near term, in the medium to long term there are several fundamental reasons why the silver prices are likely to go up.
Silver has several industrial uses given that it is a very good conductor of electricity, a very good heat transfer agent and reflector of light, and at the same time a marvellous lubricant. But demand from several major industries that use silver has been on its way down over the last few years. As Jeff Clark writes in the recently released The Casey Research 2011 Silver Investing Guide, "Demand from a number of industries that use silver has been flat or falling. Household demand for silver such as cutlery, flatware, and candlesticks hasn't risen in ten years. Jewellery fabrication is up, but a blip. With the shift to digital photography and image storing, use in photographic film processing continues to fall."
But despite this, overall demand of silver is rising and is expected to continue to rise in the years to come. A recent study, titled The Future of Silver Demand carried out by GFMS Ltd for The Silver Institute, expects the industrial demand for silver to shoot up from 487.4 million ounces to 665.9 million ounces in 2015.
This demand for silver is expected to come from several new industrial uses of the white metal. In fact more new patents are filed on silver than any other metal. "Since 1999, consumption in electronics has increased 120%. Silver use in solar panels began in 2000, and usage is up 640% since. Silver was first used in biocides (antibacterial agents) in 2002 and, while a small percentage of total silver use, it has grown six-fold," writes Clark.
Let us try and understand each of these uses in some detail.
Electricity and electronics
Given that silver has the highest thermal as well as electrical conductivity of any metal, its usage in electrical as well as electronic applications forms a little under half of its industrial use. Over the last ten odd years a major use of silver in this segment has been in the manufacture of multi-layer ceramic capacitors, which are used in a wide range of consumer products, including cell phones. Given that global cell phone demand will continue to remain robust over the coming years, the demand for silver from this segment is likely to remain strong.
Over and above this, the number of electronic uses per automobile is on its way up, paving the way for greater demand for silver. As Stephen Leeb points out in a recent research paper Hi Ho Silver, "In addition, the robust growth in the automobile industry should also benefit demand for silver contacts. Not only is global auto production forecast to grow on average by nearly 6% between 2011-2015 but, (and arguably at least as important) is the rising number of electronic uses per automobile."
A silver contact is an electro-mechanical device for joining electrical circuits. The list of core uses for silver contacts has been growing from controlling windshield wipers and seat adjustments to managing navigation systems.
Solar power
"The rise in solar power is arguably the most significant development for silver demand in recent years," points out the GFMS report. Solar panels, which need to be installed to generate solar power, use silver because of its better thermal and electrical conductivity as well as reflective power.
"Over the last decade, this sector's offtake has climbed rapidly, soaring from less than 2 million ounces to an estimated 50 million ounces in 2010. This year the demand is expected to reach nearly 70 million ounces, an increase of 40% year on year," the report further points out. Also, solar power is likely to receive a fillip in the days to come as the world realises the dangers of nuclear power after the tsunami in Japan nearly brought the world on the brink of a nuclear disaster. The use of silver in solar power is not a new thing but "what is new, however, is strong political will, backed by financial incentives."
So analysts expect demand from this segment to keep growing. As Leeb writes, "Outside of Europe, which has accounted for around 70% of total..installations to-date, the project pipeline remains strong, with notable additions expected in China, India and the United States. Egypt, Morocco and Israel are also expected to increase installations rapidly, albeit on a smaller scale. These, along with a host of other countries, are expected to drive growth over the forecast window, with total silver demand exceeding 100 million ounces by 2015, roughly double the level achieved last year." To give the readers a sense of proportion the total silver mined in 2010 was around 700 million ounces.
Silver as a biocide: In fact, silver also has very good anti-bacterial qualities and it was first used as a biocide i.e. an antibacterial agent only in 2002. However, since then the use of silver in this segment has grown six fold.
Jeff Nielson, editor of www.bullionbullscanada.com writes, "Silver is unique in possessing chemical properties, which make it impossible for bacteria to reproduce… look at the use of silver in polyester sportswear… because of its anti-bacterial properties. However, in this case, the silver kills bacteria not to prevent disease, but to reduce odour. It is the bacteria which are contained in our perspiration which are responsible for odour. Kill the bacteria, and you greatly reduce odour." Estimates made by Nielson suggest this segment consumes over 38 million ounces per year.
Also as Clark points out "new uses for silver are being found almost every day, particularly in the biocide arena."
RFID tags
Radio Frequency Identification (RFID) tags are another major area from which demand for silver could pick up in the days to come. As Leeb points out, "They make use of printed silver ink, made from silver nitrate. RFID tags can be used to track inventories and provide an alternative to bar codes, compared with which they can store considerably more data. In essence, their role is to transmit data stored on the tag (usually in a chip) to a reader, via an antenna. Silver can be used in the antenna and to form a bond between the chip and the tag itself." Currently, the global demand is expected to be around 1-2 million ounces per year, and is expected to double by 2015. Solid state lighting is another area where demand is expected to come in the days to come.
Supply lower than demand
The mine production of silver has gone up over the years as producers have mined more to cash in on the dramatic increase in the price of silver. Since 1999, the mine supply of silver has gone up by 33%. But the demand has gone up faster. In 2010, the mine supply of silver was around 700 million ounces whereas the total silver demand was around 850 million ounces. The deficit in supply is met through scrap silver. Scrap silver is silver that is reclaimed after it has already been used in a certain application.
But there is a problem with scrap. As Clark points out, "While scrap metal comprises about 20% of silver's total supply, many of these new applications are difficult to reclaim. Some applications contain such small amounts that they're uneconomic to recapture, such as many biocidal and nanotechnology applications. With others it'll be a long wait. Solar panels, for example, have a 20- to 30-year life. Still others are waiting on more effective recovery programs; more than half of all silver in cell phones, TVs, computers and other electronics, for instance, still ends up in landfills."
All these reasons still make silver a very interesting investment bet.
Silver has several industrial uses given that it is a very good conductor of electricity, a very good heat transfer agent and reflector of light, and at the same time a marvellous lubricant. But demand from several major industries that use silver has been on its way down over the last few years. As Jeff Clark writes in the recently released The Casey Research 2011 Silver Investing Guide, "Demand from a number of industries that use silver has been flat or falling. Household demand for silver such as cutlery, flatware, and candlesticks hasn't risen in ten years. Jewellery fabrication is up, but a blip. With the shift to digital photography and image storing, use in photographic film processing continues to fall."
But despite this, overall demand of silver is rising and is expected to continue to rise in the years to come. A recent study, titled The Future of Silver Demand carried out by GFMS Ltd for The Silver Institute, expects the industrial demand for silver to shoot up from 487.4 million ounces to 665.9 million ounces in 2015.
This demand for silver is expected to come from several new industrial uses of the white metal. In fact more new patents are filed on silver than any other metal. "Since 1999, consumption in electronics has increased 120%. Silver use in solar panels began in 2000, and usage is up 640% since. Silver was first used in biocides (antibacterial agents) in 2002 and, while a small percentage of total silver use, it has grown six-fold," writes Clark.
Let us try and understand each of these uses in some detail.
Electricity and electronics
Given that silver has the highest thermal as well as electrical conductivity of any metal, its usage in electrical as well as electronic applications forms a little under half of its industrial use. Over the last ten odd years a major use of silver in this segment has been in the manufacture of multi-layer ceramic capacitors, which are used in a wide range of consumer products, including cell phones. Given that global cell phone demand will continue to remain robust over the coming years, the demand for silver from this segment is likely to remain strong.
Over and above this, the number of electronic uses per automobile is on its way up, paving the way for greater demand for silver. As Stephen Leeb points out in a recent research paper Hi Ho Silver, "In addition, the robust growth in the automobile industry should also benefit demand for silver contacts. Not only is global auto production forecast to grow on average by nearly 6% between 2011-2015 but, (and arguably at least as important) is the rising number of electronic uses per automobile."
A silver contact is an electro-mechanical device for joining electrical circuits. The list of core uses for silver contacts has been growing from controlling windshield wipers and seat adjustments to managing navigation systems.
Solar power
"The rise in solar power is arguably the most significant development for silver demand in recent years," points out the GFMS report. Solar panels, which need to be installed to generate solar power, use silver because of its better thermal and electrical conductivity as well as reflective power.
"Over the last decade, this sector's offtake has climbed rapidly, soaring from less than 2 million ounces to an estimated 50 million ounces in 2010. This year the demand is expected to reach nearly 70 million ounces, an increase of 40% year on year," the report further points out. Also, solar power is likely to receive a fillip in the days to come as the world realises the dangers of nuclear power after the tsunami in Japan nearly brought the world on the brink of a nuclear disaster. The use of silver in solar power is not a new thing but "what is new, however, is strong political will, backed by financial incentives."
So analysts expect demand from this segment to keep growing. As Leeb writes, "Outside of Europe, which has accounted for around 70% of total..installations to-date, the project pipeline remains strong, with notable additions expected in China, India and the United States. Egypt, Morocco and Israel are also expected to increase installations rapidly, albeit on a smaller scale. These, along with a host of other countries, are expected to drive growth over the forecast window, with total silver demand exceeding 100 million ounces by 2015, roughly double the level achieved last year." To give the readers a sense of proportion the total silver mined in 2010 was around 700 million ounces.
Silver as a biocide: In fact, silver also has very good anti-bacterial qualities and it was first used as a biocide i.e. an antibacterial agent only in 2002. However, since then the use of silver in this segment has grown six fold.
Jeff Nielson, editor of www.bullionbullscanada.com writes, "Silver is unique in possessing chemical properties, which make it impossible for bacteria to reproduce… look at the use of silver in polyester sportswear… because of its anti-bacterial properties. However, in this case, the silver kills bacteria not to prevent disease, but to reduce odour. It is the bacteria which are contained in our perspiration which are responsible for odour. Kill the bacteria, and you greatly reduce odour." Estimates made by Nielson suggest this segment consumes over 38 million ounces per year.
Also as Clark points out "new uses for silver are being found almost every day, particularly in the biocide arena."
RFID tags
Radio Frequency Identification (RFID) tags are another major area from which demand for silver could pick up in the days to come. As Leeb points out, "They make use of printed silver ink, made from silver nitrate. RFID tags can be used to track inventories and provide an alternative to bar codes, compared with which they can store considerably more data. In essence, their role is to transmit data stored on the tag (usually in a chip) to a reader, via an antenna. Silver can be used in the antenna and to form a bond between the chip and the tag itself." Currently, the global demand is expected to be around 1-2 million ounces per year, and is expected to double by 2015. Solid state lighting is another area where demand is expected to come in the days to come.
Supply lower than demand
The mine production of silver has gone up over the years as producers have mined more to cash in on the dramatic increase in the price of silver. Since 1999, the mine supply of silver has gone up by 33%. But the demand has gone up faster. In 2010, the mine supply of silver was around 700 million ounces whereas the total silver demand was around 850 million ounces. The deficit in supply is met through scrap silver. Scrap silver is silver that is reclaimed after it has already been used in a certain application.
But there is a problem with scrap. As Clark points out, "While scrap metal comprises about 20% of silver's total supply, many of these new applications are difficult to reclaim. Some applications contain such small amounts that they're uneconomic to recapture, such as many biocidal and nanotechnology applications. With others it'll be a long wait. Solar panels, for example, have a 20- to 30-year life. Still others are waiting on more effective recovery programs; more than half of all silver in cell phones, TVs, computers and other electronics, for instance, still ends up in landfills."
All these reasons still make silver a very interesting investment bet.
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