SLV: Closer Look At Solar Demand Growth

As we discussed in a previous article, scary headlines are usually not a good time to buy silver/gold (ETF NYSEARCA: SLV A good way to touch silver to avoid physical silver management).Indeed, all sharp spikes According to the silver price chart from 1976 to 2022 below, silver prices have had a false start over the last few years (perhaps the last few decades).

If you bought it after the price of silver surged in the last few decades, it will probably fall soon. This makes sense when:

1. About half of silver demand is industrial, and industrial demand is cyclical.
2. According to the chart below, silver has been in oversupply for most of the past decade. This may be the main reason for the price slump over the last decade.

However, the situation has improved over the past few months, increasing the certainty of a bull market. This article will mainly focus on the bullish points that other authors have not yet covered, especially the details of the growing demand for solar power.

Reason 1: Solar-to-Silver demand is likely to increase dramatically in 2023

Potential demand for silver from green/alternative/renewable energy growth is often mentioned, but this article attempts to quantify it a bit more.

Silver demand from solar is driven by two factors.

1. Increase in photovoltaic installed capacity

Long term: There is a fundamental growing trend as solar power becomes a cost-competitive source of electricity (and the technology is rapidly evolving to make it even more efficient).

2023: There are also strong catalysts for growth in 2023. In 2023, both demand and supply of solar modules are likely to increase as the price of solar modules falls sharply in line with the increase in key raw material inputs such as polysilicon.

Due to the polysilicon capacity bottleneck, solar module prices will skyrocket in 2021 and remain high in 2022. However, polysilicon capacity is projected to surge in the fourth quarter of 2022 and double by 2023 based on current fab expansion plans. By the end of 2023, China will have enough polysilicon capacity for about 1000 GW of modules (which is about four times the global installed capacity in 2022).

This has caused prices across the value chain, especially modules, to plummet. Below are the local market prices in China (because China is a major module producer). It is clear that prices have fallen significantly at the end of 2022.

The section below attempts to quantify the impact in terms of silver demand.

2. Decrease in silver usage per module: This is an often overlooked factor that has a negative impact on silver demand.

As technology improves, the strength of silver (ie, the amount of silver used per GW of solar modules) has decreased.by World Silver Survey 2022 (According to the Silver Institute), as shown below, the intensity of silver per solar cell has decreased by 80% over the last decade.

This has made silver demand grow much more slowly than solar installations in the last decade.Around bloombergthe global installed solar capacity in 2022 was probably about 268 GW).

However, the Silver Institute explains that this is the culprit.

• Over the past decade, the width of the fingers (the width of the silver paste lines printed on the front and back of the panel that collect and deliver the generated DC current) has decreased from 100 µm to 30 µm.
• It looks like you’ve achieved an easily achievable achievement here. Future reduction in finger width is projected to be 25-30 μm by 2025 (with another 30% reduction over 3-4 years).
• Also, the pressure to economize on the use of silver cells may be eased by the increased use of silver with the transition to newer technology solar cells such as TOPCon and HJT, resulting in “30 to 80% more savings than current panels”. % more silver may be needed.” Over the next few years, the decline in silver strength will be much less during periods of significant growth in solar installations.

Bottom line: PV demand (already 11% of total silver demand) is likely to grow rapidly in 2023 (at least with optimistic projections for the next few years). Weak silver supply (production peaked after 2016, limiting new mine production).

Demand could exceed supply by staggering amounts.

• Considering China’s expansion of polysilicon, there is a consensus estimate that the new global installed solar capacity in 2023 will be 350 GW (compared to about 270 GW in 2022, a 30% nearly doubled compared to the 182 GW in the
• Even if silver intensity declines significantly by 15-20% per annum compared to 2021 (the trend decline over the past decade is about 10% per annum), silver usage will still decrease by at least 50% compared to 2021. % increases (about 55moz) assuming an aggressive reduction in silver strength, adding to the current imbalance where demand exceeds supply.
• Even better, the market imbalance will widen and persist as solar installations are projected to grow rapidly in the coming years.

market imbalance

click to enlarge

Source: Author’s calculations

Reason 2

Silver’s share of the total cost of a module is still very small, so solar module producers and consumers are well able to absorb a significant increase in the price of silver (even if they (even if you complained about or tried to replace it).

Assuming that the above calculation uses about 600,000 ounces of silver per GW, that equates to about $15 million per GW. Each GW costs about $200 million (assuming module prices return to historically low levels), which means silver will be about 7.5% of the module cost. A doubling or tripling of the price of silver would be inconvenient, but it’s not the end of the world for solar modules.

Reason 3: Silver stocks are declining rapidly despite the general economic slowdown

Silver stocks (bottom red line, right axis) have fallen from 390 million ounces in early 2021 to around 295 million ounces in recent years. This is encouraging for Silver Bull, especially as inventories continued to decline despite global economic turmoil in 2022.

Source: Comex

At the current drawdown rate of 100 million ounces per year, COMEX silver stocks will be zero in about three years and 150 million ounces per year (50 from 2023 growth calculated above 100 in 2022 plus 50) Then it will take two years. If demand for silver exceeds projections (due to increased solar growth or a small decrease in silver intensity per GW), this could accelerate dramatically within a year or two.

LBMA’s silver holdings also fell the most in 2022. From about 1.2 billion ounces in mid-2021, he fell to 840 million ounces in December 2022. It’s LBMA and won’t reappear on other exchanges (like COMEX) with public data, so it either moves to the physical world or ends up in private vaults, but as many physical Either there is strong demand, or someone is very bullish on hoarding so much silver.

risk:

The two main risks to silver’s outlook are macroeconomic and solar demand.

• Macroeconomics: The Fed remains tight-lipped, repeatedly arguing that the fight to bring inflation back to 2% will take time. Tight monetary policy is likely to continue for some time, but if demand for silver is as strong as expected, it may not be as headwind as feared.

Copper is a good example. Copper prices started a bull market in 2003 as demand from China began to outpace supply, but the biggest gains came after the Fed entered a tightening cycle (copper prices compared to Fed funds rate are shown below).

That said, while the 2003-2007 copper bull market occurred amid a global housing boom, there are fears the economy is now close to recession.

• Demand for silver from solar could fall short of projections: (i) technologies that significantly reduce the strength of silver or eliminate the use of silver (by substituting it with copper, etc.); or (ii) solar installations alone are for some reason growing solar more than expected (e.g. the United States is produced in China). (e.g., tariffs are imposed on imports from solar cell modules).

Editor’s note: This article covers one or more microcap strains. Please be aware of the risks associated with these stocks.