Silver industrial demand has gone through a difficult period in recent years. The 2008 global recession and subsequent sluggish economic recovery have impacted end-use demand in a number of key industrial sectors. In addition, high and volatile silver prices have incentivised manufacturers to thrift on the use of silver in a range of applications. While the economic impact on industrial offtake is cyclical in nature, thrifting in practice is rarely reversed and effectively results in demand destruction.

In this article, however, we make the case for why silver industrial offtake appears to have turned the corner in 2013. As we explain, two factors underpin much of this view. First, a number of sectors are now following the global economy on the road to recovery. Second, the weaker silver price (at the time of writing) means that thrifting should be far less of a threat to industrial demand than was the case even at the start of this year.


Declining inventories across the supply chain now feeding through into higher silver powder and paste demand.

One of the most significant end-use industrial markets for silver is photovoltaics (PVs), the key starting point for which is silver powder. The strength this sector enjoyed through to late 2011 accounted for the significant ramp-up in powder trade at that time. In sharp contrast, late 2011 through to 2012 saw a marked downturn, following what turned out to be the build-up in 2011 of both excess production capacity and inventories of finished cells, principally in China.1 Aggressive thrifting by the industry, following the spike in silver prices to $50/oz in 2011, led to further downward pressure on silver offtake.

Although at first sight it may appear counterintuitive, the speed with which silver has been thrifted in recent years could well have preserved the long-term use of the metal in PVs. Put another way, the rate of thrifting has been so great that the potential economic benefits of continuing to reduce silver content at the same rate, taking into account also the weaker price, no longer appears to justify the RnD costs of doing so. Ultimately, it is our understanding that while the industry continues to reduce silver loadings, it now does so at a far slower rate.

Looking ahead, our field research also paints a sanguine picture for silver PV offtake in the near to medium term. Our understanding is that much of the finished cell inventory overhang that was in place has been depleted and that more ‘normal’ levels are now emerging across the supply chain. Coupled with installations keeping to healthy rates and slower thrifting, this is now starting to feed through to higher demand for silver pastes (and by implication, silver powder).

To shed some light on the potential longer-term outlook of silver PV demand, we look at forecasts for global installations, provided by the European Photovoltaic Industry Association. Overall, this information highlights that, over the next few years, global installations will comfortably exceed those realised in 2011. Even so, we believe that the use of silver will fall short of volumes achieved back then. In other words, it is misleading to benchmark future PV silver demand against 2011, with silver demand unlikely to recapture those levels. Instead, it is more appropriate to use 2013, with silver offtake likely to reach 35-40 Moz, as a more realistic benchmark in assessing future silver demand in this application.

Ethylene Oxide Catalysts

Near uninterrupted growth over the past 30 to 40 years, further gains expected over the short to medium term.

The ethylene oxide (EO) sector can often be overlooked in terms of its importance to the global silver market. Even though annual demand is relatively modest and the industry has not seen a tremendous upturn similar to that in photovoltaics, over the past 30 to 40 years, it has enjoyed near uninterrupted growth. In today’s new market, new silver EO demand is estimated in the region of 5-6 Moz per annum, compared with a lower level of around 3-4 Moz per annum over the past decade.

The rise can be explained for two reasons. First, to meet growing demand for a range of consumer and industrial products, newly installed EO plants are, on average, increasing in size. Second, the silver content per installation, or capacity expansion, is also rising. In other words, in spite of the uptrend in silver prices over the past decade, there has been little sign of thrifting on silver usage in EO catalysts. As such, the average silver content per plant has risen dramatically, from around 0.25 Moz during the 1970s to around 2-3 Moz per plant in 2013. This stands in stark contrast to many other areas of silver industrial demand, where thrifting has often had a marked impact on silver consumption.

One of the interesting points about the EO market is the almost clear geographical separation between the various links in the supply chain. The first stage involves the production of silver oxide, which is dominated by the United States. In contrast, the profile of where the plants are installed is far more dispersed. During the 1980s and 1990s, global EO installations were dominated by the Americas and Europe. However, over the last 10 to 15 years, the landscape has changed noticeably, with new installations now concentrated in South and East Asia, and the Middle East. Drilling down further, just two countries now stand out, namely China, where EO installations first ramped up in 2004, and Saudi Arabia, which saw a jump in EO demand at the turn of the millennium.

“In today’s market, new silver EO demand is estimated in the region of 5-6 Moz per annum, compared with a lower level of around 3-4 Moz per annum over the past decade.

The relatively modest annual growth in new silver demand, of around 5-6% per annum, has given rise to a substantial installed capacity of silver in EO plants on a global basis. Using historic data on installations provided by PCI Global and factoring in our estimates for the silver content per plant, we believe that the global installed capacity of silver is currently in the region of 170 Moz. This compares with around 100 Moz at the turn of the millennium. Looking ahead, given the expected growth in new EO capacity, it appears as though, within the next four to five years, we are likely to see global installed capacity surpass 200 Moz.

This gives rise to another important feature of the EO market, namely the change-out of spent catalysts, to the benefit of both recyclers and also the leasing market. On average, EO plants are changed, or recycled, every two to three years. That said, during an economic downturn, change-outs may be brought forward, so as to take advantage of periods of relatively quiet end-use demand. In contrast, during a time of heightened demand, a plant may be run for an extended period, even though this will see the efficiency of the installed catalyst (and therefore its productivity) deteriorate. That aside, on average, around 20-30 Moz of silver is reclaimed every year, equivalent to around 12-18% of the installed base. To put this into context, this compares with new demand, as noted earlier, of around 4-6 Moz per annum.

Other Applications

Global demand for silver contacts is expected to improve, but the outlook for brazing alloys is more uncertain.

A key area of industrial demand is the use of silver in the electrical contacts industry, which includes the use of multi-layer ceramic capacitors (MLCCs). Although the outlook for silver demand in MLCCs remains uncertain, given the potential for silver: palladium to lose further market share to base metal capacitors, the overall outlook for silver contacts in electronics is more bullish. This view is premised on the outlook for several key end-markets and, in particular, for automotive demand.

Last year, the production of light duty vehicles (LDVs) achieved a new record high, rising by 6% to around 82 million units. In the next few years, the market is slated to grow in the region of 4-5% per annum. In our view, the use of silver contacts across the automotive industry should achieve higher year-on-year gains, compared with the growth in vehicle production. In essence, we should see a growing use of electrical devices in mid-range LDVs, as applications that were once the preserve of high-end models filter down to the mass market. In our view, this trend will offset both thrifting and substitution efforts (the latter being in favour of base metals).

Separately, we are more wary about the prospects for silver brazing alloy demand. A key external determinant is the global outlook for housing and construction. On the one hand, the global economy is gradually improving, notably in the US, with China expected to avoid a hard landing. While this may argue for stronger brazing demand, a growing risk for silver demand, on the other hand, is substitution in the air conditioner market, with copper being replaced with aluminium. We have to remember that the use of silver in new units is trivial. However, in the aftermarket, copper is typically replaced with silver: copper, whereas the precious metal is not used as a replacement for aluminium.

“A key area of industrial demand is the use of silver in the electrical contacts industry, which includes the use of multi-layer ceramic capacitors (MLCCs).”

Understanding Trade Flows

Backing up field research – looking for signs of an upturn in the trade flows.

As discussed above, our field research indicates that global industrial demand has turned the corner in 2013. In contrast, the picture emerging from trade statistics, often used to corroborate (or otherwise) field analysis, has been less clear cut. To understand industrial demand, the trade in silver powders, a key intermediate product, often proves a useful starting point. Taken at face value, though, the table below offers a mixed picture.

The import data highlights some of the world’s largest consumers of silver powders, an important share of which is used to produce, as we have discussed, silver pastes. Given that Korea is now a major paste manufacturer, this explains the jump in Korean powder imports, which has benefited from both healthy market share gains and also improved demand from the flat screen industry (for touch screens across a range of devices). In contrast, the sharp fall in Taiwanese imports must be seen in the context of a record import total the year before, due to the relocation of some PV cell manufacturing from mainland China. More important, in our view, is the hefty drop in combined Chinese/ Hong Kong silver powder imports. However, we do not believe this reflects the state of Chinese demand. Instead, we understand that domestic silver powder production has risen this year, partially displacing inbound shipments.

Turning to powder exports, the headline data shown in the table initially appears inconclusive. The upturn in Japanese exports reflects the ongoing recovery from its recent natural disasters, together with technology-driven export gains, especially in the US. With regards to US exports, the decline appears surprising, given our feedback of an overall upturn in powder demand. However, two points are worth noting. First, an increasing portion of US silver powder offtake is being consumed locally, rather than being exported. Second, the US may have lost market share to Korea this year, hence the dramatic rise in Korea’s powder imports.

New Industrial Applications

Little sign of a ‘new PV’ emerging over the next two to three years; over the short to medium term, the current raft of new uses are unlikely to consume a significant quantity of silver.

The last area to touch on concerns new uses, for which there has always been a great deal of debate, in particular, about their impact on industrial demand. The only ‘new’ use, in our view, to have any material impact in this way has been PV. Although this application has existed since the 1970s, it was only the more recent change in environmental legislation that fundamentally altered the landscape for PV, combined with the fact that average silver loadings (per cell) remained high, until quite recently that is.

This brings us to the key point about so many new uses over the past decade. Several of these have achieved commercial success, in terms of their ability to exploit silver’s properties, with the medical sector a notably beneficiary. However, a common challenge (in terms of the silver market) has been the trivial level of silver offtake that has often been achieved on a per unit basis. As such, the impact on silver demand of many new applications, ranging from wood preservatives to biocides, has so far been extremely modest.

However, this does not necessarily point to a bleak demand profile in the coming years and, in fact, in our view, this misses a key point.

Much of the expected growth will come from new developments in existing markets. We have already touched upon new electrical uses in the auto sector, especially for silver contacts. To this, we should add the surge in demand for flat panel devices, notably touch screen devices, which are currently enjoying tremendous growth. Neither might be termed ‘new uses’ in the traditional sense, but each is clearly having a positive impact on the industrial silver market.

Philip Newman, Director, Metals Focus

Prior to forming Metals Focus with Nikos Kavalis and Charles de Meester, Philip was Research Director at Thomson Reuters GFMS, formerly GFMS, where he spent 19 years. During his time there, Philip was responsible for precious metals research in the United States, parts of the Middle East and the United Kingdom. Philip received a BSc (Hons) Economics from the University of Surrey.