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July 14, 2023 | Silver Gets Some Mainstream Coverage

John Rubino is a former Wall Street financial analyst and author or co-author of five books, including The Money Bubble: What to Do Before It Pops and Clean Money: Picking Winners in the Green-Tech Boom. He founded the popular financial website in 2004, sold it in 2022, and now publishes John Rubino’s Substack newsletter.

Readers of this newsletter know the silver story by now. So it might come as a surprise to hear that maybe 95% of the investing public knows virtually nothing about monetary metals in general and silver’s unique supply/demand situation in particular.

In such an obscure market, mainstream exposure can have a dramatic impact by exposing generalist investors to something new, just as the thesis gets really interesting.

Bloomberg just did this, with an article about how next-gen solar is soaking up a growing share of (stagnant) silver mine production:

The World’s Appetite for Solar Panels Is Squeezing Silver Supply

(Bloomberg) – Changes to solar panel technology are accelerating demand for silver, a phenomenon that’s widening a supply deficit for the metal with little additional mine production on the horizon.

Silver, in paste form, provides a conductive layer on the front and the back of silicon solar cells. But the industry is now beginning to make more efficient versions of cells that use a lot more of the metal, which is set to boost already-increasing consumption.

Solar is still a fairly small part of overall silver demand, but it’s growing. It’s forecast to make up 14% of consumption this year, up from around 5% in 2014, according to a report from The Silver Institute, an industry association. Much of the growth is coming from China, which is on track to install more panels this year than the entire total in the US.

Solar is a “great example of how inelastic demand for silver is,” said Gregor Gregersen, founder of Singapore-based dealer Silver Bullion. The solar industry has evolved to become much more efficient with using smaller amounts of silver, but that’s now changing, he said.

The standard passivated emitter and rear contact cell will likely be overtaken in the next two to three years by tunnel oxide passivated contact and heterojunction structures, according to BloombergNEF. While PERC cells need about 10 milligrams of silver per watt, TOPCon cells require 13 milligrams and heterojunction 22 milligrams.

At the same time, supply is starting to look tight. It was flat last year, even as demand rose by nearly a fifth, figures from The Silver Institute show. This year, production is forecast to increase by 2% while industrial consumption climbs 4%.

The trouble for silver buyers is that cranking up supply is far from easy, given the rarity of primary mines. About 80% of supply of the metal comes from lead, zinc, copper and gold projects, with silver a by-product.

And in an environment where miners are already reluctant to commit to large new projects, lower margins in silver compared with other precious and industrial metals mean positive price signals aren’t enough to crank up output. Even newly approved projects could be a decade away from production.

The result is a strain on supply so significant that a study from the University of New South Wales forecasts the solar sector could exhaust between 85–98% of global silver reserves by 2050. The volumes of silver used per cell will increase and it could take about five to 10 years to bring them back to current levels, according to Brett Hallam, one of the authors of the paper.

The article goes on to predict that if silver prices exceed $30/oz, the resulting pain will lead solar panel makers to reduce the amount of silver in each panel. But that falls under the heading of “problems we’d like to have.”

As for solar’s growth prospects going forward, the US is doing its part via that recently-passed infrastructure bill:

For someone who views silver as just an industrial metal, the above story (new technology raises demand, potentially sending the price much higher) is compelling. But add in silver’s historical role as a monetary metal at a time when currency debasement is bringing real money back into style, and this has the feel of a no-brainer.

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July 14th, 2023

Posted In: John Rubino Substack

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