Around the year 2000, industrial demand for silver (excluding photography and jewellery) accounted for just over 30 per cent of total demand. In 2011, it had climbed to 54 per cent and is predicted to rise to 74 per cent by 2020. This is a stunning change in demand dynamic. The most startling new use for silver has been in the field of solar panelling. It takes 80 tonnes of silver to produce a gigawatt (GW) of electricity. In 2000, there was essentially no demand for silver for solar panelling. Today, approximately 13GW of electricity are produced globally via solar panels.
To put these numbers into context, China and the US plan to increase their solar capacity from around five GW at present to 20GW by 2020, while India plans to increase its capacity from essentially scratch to 20GW by 2020. Assuming another 20GW-40GW from the rest of the world, and silver demand from solar panelling alone is set rise to 20-30 per cent of total demand by 2020.
Solar panelling, however, is just one of the many new uses for silver that will drive demand. There are many others. Silver usage in medicine is only just starting. Silver has unique anti-bacterial properties. Its use in the health industry is spreading from silver-impregnated materials as a protection against MRSA to use in food hygiene and water purification. In 2000, the amount of silver demand from medical, water and food hygiene totalled 340 tonnes. By 2010, this demand had expanded to 1,062 tonnes. According to the VM group, demand of 2,741 tonnes is forecast by 2020, representing almost 30 per cent of the expected total demand for silver.
Demand, then, seems set to grow very rapidly over the coming decade. Supply, however, is a different story. Over the last decade, despite a rapid increase in demand, silver production has averaged just over 2 per cent a year. There are a number of reasons for this. First, most silver mining occurs as a by-product from gold or copper mining. Second, according to the US Geological Society, the volume of silver left to be mined is potentially low. Silver supply is very inelastic.
Future industrial demand is set to grow at a potential 10 per cent a year over the coming decade. The supply of silver may have trouble hitting 2-3 per cent growth per year. Against a background of more and more money printing, this imbalance between supply and demand may well see silver lurch higher and higher over the coming decade.
| Joe Roseman worked at the US hedge fund, Moore Capital Management, from 1994 to 2010, where he was head of economics. He published SWAG - Alternative Investments for the Coming Decade in May 2012. www.swaginvestor.co.uk |
