The recent COVID-19 pandemic and the ongoing increase in investments on renewables worldwide appear to have resulted in a sharp upswing in silver prices. Within a short three-day period from August 4 to 6, silver prices skyrocketed and hit a four-year high of US$28.04/oz. If this trend continues, manufacturers of PV cells will begin to feel an increase in cost pressure. A recent study came out from the University of Kent in the UK stated that silver comprises about 6% of the total production cost of a PV module.
Besides being a precious metal traded on international exchanges, silver has many important industrial uses such as conductive material, catalytic agent, and constituent of an alloy. According to industry association The Silver Institute, the two major industrial applications of silver are the electrode material for PV cells and the catalyst for the production of ethylene oxide, which is a precursor in the production of plastics. In the production of PV cells, silver is one of the ingredients in the conductive paste that is used to print busbars and fingers on the surface of cells.
The recent surge in silver prices is mainly attributed to the COVID-19 pandemic. Investors have been hoarding precious metals as they see growing economic fallout from this black swan event. During the three days from August 4 to 6, silver prices soared by US$3.77kg to US$28.04. This represents a new peak since 2016.
Michael DiRienzo, executive director of The Silver Institute, told solar news publisher PV Magazine that worries about inflation and low interest rates are the main drivers of the latest rise in silver prices. DiRienzo is still uncertain about whether prices will keep going up or soon stabilize at a high level.
Regarding the impact on the solar market, DiRienzo stated that the hike in silver prices has yet to become serious enough to influence the cost of PV cells, even though silver is a key raw material in cell production. Other sectors besides the solar industry have not been noticeably affected as well. On the whole, there is some distance for silver prices to climb before they reach a level that will have an adverse effect on industries. DiReinzo also pointed out that the annual total demand for the metal this year is projected to drop by around 7% compared with last year.
In sum, The Silver Institute is asserting that prices are still far from “the critical threshold” for the solar industry. Nevertheless, the institute has also been saying that it is difficult to determine how much silver prices will have to rise in order to have a tangible influence on the production costs of PV cells and modules.
Naturally, participants in the solar industry prefer a downward trend in silver prices. Presently, many countries have started to lift some of the measures for containing the spread of COVID-19 (e.g., regional lockdowns and social distancing rules). Hence, demand is returning for many manufacturing sectors. This development, coupled with the quantitative easing being carried out by the US Federal Reserves, have helped raise the attractiveness of silver as “a poor man’s gold” for investors. Compared with last year, silver prices have already increased by more than 51% and broken the US$25/oz. ceiling for the first time since 2013. With prices now peaking around US$28 over the past few days, cell manufacturers might be looking for conductive pastes that have less or none of this metal.
Analysts at Citi have also forecasted that returning demand in manufacturing sectors will keep pushing up silver prices over the next six to 12 months.
(News source: TechNews. Photo credit: Shutterstock.)