China’s solar panel surge powers silver price 

Silver has broken through a mental price barrier to its highest level in more than a decade, driven in part by China’s surging solar panel industry and investor demand, analysts say.  

The spot price hit more than US$30 an oz. this month, its strongest since February 2013. China doubled its investment in solar photovoltaic panels from 2022 to 2023 to control 80% of the world’s manufacturing capacity, according to an International Energy Agency report issued May 5.  

Toronto-based asset manager Sprott, which holds US$5.3 billion in physical silver, says this year’s 1 billion oz. in global supply will fall 265 million oz. short of meeting demand because of declining production and rising industrial use, especially in solar panels. Photovoltaic demand may hit 370 million oz. by 2030 out of global silver demand approaching 1.4 billon oz., it said.  

“You take a stagnating mine supply, you add to that a very healthy growth in demand and then that translates to dwindling inventories,” Maria Smirnova, a portfolio manager at Sprott, said on a May 14 conference call. “Well, that is exciting. This is why we’re starting to see the price move.”  

Silver is key for solar panels because it’s an efficient conductor and reflective metal. The drive for green energy and government incentives are accelerating solar power adoption. But manufacturers are embracing more efficient panel technologies such as TOPCon, or tunnel oxide passivated contact, and heterojunction technology, known as HJT, which can use more than twice as much silver as earlier efforts. 

Ramp up 

Companies such as Pan American Silver (TSX: PAAS; NYSE: PAAS), Wheaton Precious Metals (NYSE: WPM; TSX: WPM) and Gatos Silver (TSX: GATO; NYSE: GATO) are benefitting from the price rise after reporting stronger than expected first-quarter results. Hecla Mining (NYSE: HL) restarted its Idaho mine Lucky Friday in January after a fire last year and the company is ramping up output from Keno Hill in the Yukon. 

Although central banks don’t typically buy silver like they buy gold, individual investors seeking safety are buying lower-priced silver, Jeffrey Christian, managing partner at commodities researcher and investment bank CPM Group, said in an interview with The Northern Miner on May 22 in New York, where he’s based. That’s especially been the case as silver has followed gold to all-time highs in May around US$2,425 per ounce. 

“Solar panels are using more silver, but that’s not what’s driving the price up,” Christian said at a conference run by the Society for Mining, Metallurgy & Exploration. “It’s investment demand.”  

However, silver prices should ease this year, Christian said.  

“You’ll see less increased silver use this year, not as dynamic as last year,” he said. “The solar panel industry overbuilt so they have a large inventory of unsold panels that they’ll be living off of the core part of this year.”  

Spot metal prices are gaining on growing optimism the United States Federal Reserve will cut interest rates after inflation eased more than expected, BMO Capital Markets said in a note on May 20.  

“Moreover, the sense of rising geopolitical tensions in the Middle East has helped to boost gold’s safe-haven appeal,” Colin Hamilton, BMO’s managing director of commodities research, said. “Consequently, silver prices have also jumped to an 11-year high.”  

India record 

Hecla, the largest silver producer in the U.S., said the solar industry and Indian demand helped it meet analysts’ forecasts for the first quarter. Global solar panel investments rose 12% last year to US$393 billion and the industry accounts for 16% of silver demand, CEO Phillips Baker said during an earnings call on May 9, citing Bloomberg data. India imported a record 77 million oz. of silver in February and the first quarter exceeded all of last year, according to the Mumbai-based Economic Times newspaper.  

“As you put the solar and the Indian demand together, it’s about 35% of silver’s global demand, and they are both growing,” Baker said. “The three-year deficit is now over 500 million oz. and I expect more deficit this year and into the foreseeable future. Silver’s fundamentals are unlike any time in its history.”  

Still, the amount of silver bullion in exchange traded funds in the West declined to about 700 million oz. this year from more than 1 billion oz. in 2021, Smirnova said. The spot price disconnected because it climbed from late 2022 even as fund holdings fell. However, trading volumes in Shanghai doubled last year and traders paid a premium of as much as a US$4 per oz. to get the physical metal, not just on paper, she said. 

“That’s a very important factor because silver is used in many different ways, especially in industry but in small amounts,” she said. “In a lot of these uses you don’t recover the silver back, so the fact that the silver is physical ounces, it’s likely we’re never going to see them again.”  

Supply and demand 

Over the past decade, global silver production slid by 51 million oz., about 6%, to 831 million oz., according to the Washington, D.C.-based Silver Institute. Recycling and other sources bring the total supply to about 1 billion oz. this year.  

Industrial demand grew by 261 million oz. from 2014 including a 76-million oz. jump from 2022 to 2023 in photovoltaic use. Global demand including a forecast uptick in exchange traded products this year approaches 1.3 billion ounces. The 265-million oz. projected deficit might require 20 new mines to erase, Smirnova said.  

“Even though silver comes with usually lead, zinc, copper or gold, it’s getting harder and harder to find an economic deposit,” she said. “Grades are coming down. Geopolitics are playing a role because many countries are becoming more difficult to work in.”  

Silver equities, which are inexpensive, and the metal don’t have as many investors and money backing them in the West as they should, the portfolio manager said. Company stocks could triple in value when the Federal Reserve eases interest rates, judging by reactions during the dot-com crash in 2001, the financial crisis in 2008 and the commodity collapse in 2016, Smirnova said.  

“These are the kinds of gains that we can see in these equities when there’s a turn in policy and when the sentiment changes for the better,” she said. “I’ve named a lot of reasons why we like silver and why we think it’s going in the right direction and sooner or later the equities will start to reflect that.”