Silver's Solar Demand Doesn't Look Very Bright - Capital Economics
(Kitco News)- Silver prices are suffering from lackluster investor demand, and one research firm is warningthat industry demand could be weaker than many are expected, especially withinthe solar sector.
Ina report Thursday, Simona Gambarini, commodities economist at CapitalEconomics, said that her firm is maintaining its bearish forecast on silver,looking for the price to end the year at $15.50 an ounce, down almost 5% fromcurrent prices. May silver futures settled the week at $16.272 an ounce, downmore than 2% from the previous week.
Gambariniwarned that investors, depending on increased industrial demand in silver,could be faced with an unpleasant surprise. She said that silver demand,particularly in the solar power sector is not as strong as many believe as theindustry will start thrifting the precious metal.
“Wethink that silver will eventually be displaced by cheaper metals,’ she said.“[Silver] is still one of the most expensive components in a solar panel, accountingfor 10-15% of the total cost. What’s more, its price volatility has exposedmanufacturers to huge fluctuations in their bottom line.”
Gambarininoted that research has shown that cheaper aluminum can replace silver.However, she added that silver would not completely disappear from the solarindustry. The metal will continue to benefit as solar energy capacity isexpected to average 74 gigawatts within the next 10-years, up almost 100% from39GW capacity created between 2010 and 2016.
“Overall,we expect demand for silver in solar applications to continue to increase overthe next few years, but average annual demand will be only 4% higher in 2017-25than in the previous decade, despite expectations of an upsurge in PVcapacity,” she said. “Further down the line, we think that there is a risk thatsilver usage in the solar industry will be completely displaced by cheapermetals, such as aluminum or copper.”
Gambarini’sforecasts are at odds with other industry projections. The Silver Institute, ina report in mid-January, said silver demand in photovoltaic cells could hit arecord after the sector consumed 92 million ounces of the precious metal in2017.
Butit’s not just silver’s industrial demand that will weigh on prices. In thenear-term Gambarini said that an impending interest rate hike and a morehawkish Fed will keep investors away from the precious metal.
“Givenour view that the US central bank will hike interest rates four times thisyear, we think that the price of silver will fall back,” she said.
By Neils ChristensenFor Kitco News
Follow neils_C
nchristensen@kitco.comwww.kitco.com Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.