The bull case for this forgotten precious metal and how to play it

Silver, often overshadowed by its more illustrious cousin, is a precious metal that has quietly been the backbone of numerous industries for centuries. Its superior electrical and thermal conductivity has made it an indispensable resource in our modern world. 

The exploration and development of silver mines have been on a downward trend, however, leading to a precipitous drop in inventories and raising alarm bells about the future availability of this vital metal.

The recent global shift towards renewable energy and electric vehicles has put silver in the spotlight. Its crucial role in photovoltaic cells and electronic components has driven an unprecedented surge in demand. Yet, this escalating demand is being met with a supply chain that is riddled with challenges.

The silver market is entering a new era, one marked by:

• All-time high industrial demand, fuelled by the global shift towards clean energy and electronics.
• A record high market deficit, with supply struggling to keep pace with demand.

We will delve into the fascinating world of silver, exploring its industrial uses, market dynamics, and the looming supply-demand imbalance. We will also guide you on how to invest in silver, spotlighting ETPMAG, a silver-backed ETF, as a potential investment vehicle.

The industrial case for silver

Unlike gold, which is primarily used for investment or jewellery, silver plays a pivotal role in the industrial sector. It’s estimated that about 60% of today’s silver is utilized for industrial applications such as electronics, solar cells, automotive, and soldering, leaving the remaining 40% for investment.

The demand for silver in the industrial sector is steadily rising. The Silver Institute projects that demand for industrial use will reach an all-time high this year, with 2022 demand at 556.5 million ounces, a 5.3% increase over the previous year. This demand is expected to remain robust in the coming years, even amidst potential fluctuations in investment and jewellery categories. The reason? The global shift towards clean energy.

As the world leans more towards renewable energy, the demand for silver, especially in solar photovoltaic (PV) cells and electric vehicles, is set to skyrocket. Silver’s high electrical and thermal conductivity makes it an ideal component for solar panels. It’s estimated that approximately 140 million ounces of silver are consumed annually for this purpose alone.

Moreover, the demand from the solar market is expected to surge by 15%, to 161.1 million ounces in 2023, almost tripling the demand seen in 2015. Looking further into the future, the Silver Institute forecasts that consumption could hit 500 million ounces by 2050 as the energy transition intensifies. 

A tale of high demand and limited availability

The market fundamentals of silver are currently shaped by a significant imbalance between supply and demand. The Silver Institute’s data reveals a relentless growth in silver demand, which has surged by 38% since 2020 as economies recover from the Covid-19 pandemic. This surge culminated in a record-high demand of 1.24 billion ounces in 2022, a 17.6% increase from the previous year.

However, the supply side has not kept pace. The global silver market experienced an undersupply of 237.7 million ounces in 2022, creating the most significant deficit on record. This deficit, coupled with the 51.1 million ounces shortfall from 2021, has erased the cumulative surpluses from the previous decade.

As Philip Newman from Metals Focus puts it, we are entering a new market paradigm characterised by ongoing deficits. The Silver Institute forecasts a demand of 1.17 billion ounces against a projected supply of 1.02 billion ounces for 2023. Even with a slight increase in mine production, the market is expected to face the second-largest deficit in over two decades. Despite potential market fluctuations, the demand for silver remains robust, indicating that this demand-supply gap is likely to persist for the foreseeable future. 

Our top three ideas

Silver ETF

• Global X Physical Silver (ASX: ETPMAG) – This ETF provides investors with a cost-effective and secure way to invest in physical silver through the stock exchange, tracking the price and yield performance of the Silver Price in Australian Dollars. With ETPMAG, investors can tap into the potential growth and diversification benefits of silver without the burden of physical storage.

Individual Silver Mining Stocks

• Silver Mines Limited (ASX: SVL) – Silver Mines acquired the Bowdens Silver Project, the largest undeveloped silver deposit in Australia, alongside the neighbouring Barabolar Project, with a total of 2,007km of land holdings. A 2018 feasibility study indicated potential annual production of 3.4 million ounces of silver, 6,900 tons of zinc, and 5,100 tons of lead, supported by recent $18 million investments for further development.
• Adriatic Metals (ASX: ADT) – Adriatic Metals aims to begin production at the Vares Silver Project in Bosnia and Herzegovina by late 2023. The project includes previously mined zinc, lead, and barite deposits at Veovaca and Rupice, with plans to extend its life and explore potential expansion with the Rupice Project nearby. Additionally, Adriatic is constructing a processing facility for exporting silver, lead, and zinc materials, and owns the potential zinc-silver asset, the Raska Project, in Serbia. 

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