Use in photovoltaic plates up 34% in 2016, but falling solar power prices make silver a costly inputAfter going through a phase of weakness due to sagging offtake from China, silver jewellery demand is making a comeback in India. According to the World Silver Survey 2017 released by the US-headquartered Silver Institute, the party spoilers were silver coins and demand for medal fabrication. The latter was down by nine per cent in 2016 to 123.2 million ounces (Moz), after hitting a record high in 2015. The fall in silver demand for jewellery was another party spoiler. Total physical demand declined by 11 per cent in 2016 to 1,027.8 Moz, due to weaker offtake for jewellery, silverware and retail investments. Silver jewellery fabrication was down 9 per cent to 207 Moz from a record level of 228.3 Moz in 2015. The loss was led by China and India, where jewellery offtake was materially weaker due to higher silver prices and a build-up of stocks.
According to Monal Thakkar, director, Amrapali Group, one of the largest silver players in India, “2016 wasn’t a good year for Indian imports. Overall demand for silver was very low and had a cascading effect on both the jewellery sector and other industries using silver as an input. However, the situation began reversing considerably towards the new year and import this year is likely to be higher.” Cameron Alexander, Manager, Precious Metals Demand, Asia–GFMS Thomson Reuters concurs. He told Business Standard, “Jewellery fabrication demand is expected to rebound in 2017 by four per cent, with a recovery in India in particular fuelling the rise.”
The annual average silver price posted an impressive 9.3 per cent increase in 2016, its first rise since 2011. The surge followed yet another annual silver market deficit, the largest in three years and the third largest on record, hitting a low of 147.5 Moz. The average price last year, at $17.14, was 28 per cent higher than in 2007, when silver prices averaged $13.38. According to GFMS, in 2017, “We are expecting 2016 drivers like buying of futures, options and exchange traded products (ETPs) in response to safe haven activity and strengthening supply and demand fundamentals once again to be at the fore in propelling the silver price to a three-year high of $18.70/oz in 2017. Last year was a turning point for silver prices on an annual average basis, with dollar denominated prices up 9.3% to $17.14/oz, marking the first increase since 2011”.
The caveat, however, is that the price will be highly dependent on sentiment–driven factors, at least in the short term as a potentially stronger US dollar may be offset by geopolitical concerns in North Asia and the Middle East which could provide the catalyst for stronger save haven purchases. While investments through ETP holdings retreated 7 per cent from the level. Silver bar investment demand also fell by 46 percent, mainly the result of lackluster demand in India due to a combination of higher prices, destocking and government measures on unaccounted wealth.
Global silver mine production in 2016 recorded its first decline since 2002, largely the result of lower by-product output from the lead/zinc and gold sectors, said the survey. Scrap supply also recorded its lowest level since 1996 and producer hedging also contracted which brought down total silver supply by 32.6 Moz in 2016. But on the demand side, new highs were recorded for silver’s use in the photovoltaic (used for producing solar energy) and ethylene oxide sectors, both growing and significant industrial applications for silver. The survey was released by the Silver Institute and produced on its behalf by the GFMS Team at Thomson Reuters (GFMS). Silver scrap supply fell to 139.7 Moz in 2016, a level not seen since 1996, despite higher silver prices.
Solar sector demand for silver seen falling after record rise
Solar energy prices are falling with a number of new plants coming on stream. In India, solar energy isn’t cheaper than thermal, and this could have some bearing on the material used for producing it. Photovoltaic plates used for the purpose are made using silver and according to the survey by the Silver Institute, consumption of the metal in photovoltaic applications rose 34 per cent to reach 76.6 Moz in 2016. This growth was the strongest since 2010 and driven by a 49 per cent increase in global solar panel installations.
However this trend may not continue. The survey says, “Looking forward, we expect industrial demand (55 per cent of total) to remain hindered by underwhelming economic expansion in 2017 with modest contractions expected in most key demand segments. Lower solar demand will make up the lion’s share of the drop in industrial fabrication this year as the market retreats from the record high of last year.”