Solar Industry Pushes Up Silver Demand

Posted by - Tuesday, October 2nd, 2012

Silver, a safe haven in times of economic uncertainty, differs from its sister metal gold in a number of ways. For one thing, it's cheaper. For another, it has numerous applications in industrial sectors. And this is reason for demand to go up – way up.

Silver has long been used as currency, in jewelry, and for silverware. Until the mid-1960s, it was still used heavily in U.S. coins.

But in the 19th century, silver found itself in another industry – photography.

Silver was used in photography film, and demand peaked in the 20th century when photography accounted for 50% of silver demand.

Now, however, the use of film photography has slowed as quickly as it began. In just the nine years between 2000 and 2009, it went from accounting for roughly 25% of demand to about 10%, as you can see in the chart below:

Silver Industrial Demand Projection

And that will only continue to drop.

But silver demand is far from slowing. As one industry moves away from silver usage, another moves toward it.

And right now, that industry is the solar industry.

Photovoltaic panels generally use about 20 grams of silver each to generate power from the sun – significantly more than certain electronics. A cell phone uses 0.2 to 0.3 grams, and a laptop uses between 0.75 grams and just over 1 gram.

Solar panel demand is going to increase. Germany is currently the world's largest user of solar power, with 27.3% of the world's total panel installations, though Germany has been cutting back on subsidies in the midst of the economic crisis. But other countries are picking up the slack.

In its post-Fukushima state, Japan has decided to step up renewable power, offering 42 JPY, or $0.53, per kilowatt hour for 20 years.

It's expected to double its 2011 capacity of 1.3 gigawatts this year, and by 2020 it could have 28GW.

Since 2000, solar demand for silver has skyrocketed. In 1999, it was virtually zero, and this year it's expected to surpass 60 million troy ounces, as the chart shows:

Silver Solar Demand

But not all types of solar panels use silver. “Thick film” panels, the most common, demand silver heavily, but “thin film,” the kind made by companies like First Solar (NASDAQ: FSLR), use cadmium telluride instead.

Thin film panels are cheaper than thick film, but they are not quite as effective. In last year's total installations, thick film accounted for 91%, and analysts expect these type will continue to lead the market.

Of course, this would also depend on the price of silver. Panel prices have been falling lately, spurring more installations, but if demand pushes up the price of silver, panels might once again become expensive.

For now, however, silver demand in the solar industry is projected to increase. It's been pushed way up in the past eleven years, and it's replacing the dwindling demand in the photography industry.

Silver is still in high demand; industry shifts haven't changed that. And now, as the Fed initiates QE3 and continues to print free money, silver is one of the best places to be.

*Charts courtesy of Hang the Bankers

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