Silver And Industrial Demand

I. Introduction

As you know, silver is much more than just a form of money. Although not often discussed in great detail, silver is actually an incredibly important and strategic industrial commodity. In fact, demand for silver by industry has increased dramatically in recent years and shows no signs of slowing despite price fluctuations.

Silver's incredible versatility - as a conductor, a catalyst, an antibacterial agent and much more - and unrealistically low prices have made it ideal for use in a huge number of products spanning countless manufacturing sectors. And the continued (relative) affordability of this super-metal points to dramatically increased demand in coming years.

As silver investors and educators, we feel that understanding silver's tremendous role(s) in industry (along side it's importance as a store of wealth) is critical to understanding its past, present and future value. In fact, we are confident that you will find the insight and knowledge gained to be crucial for maintaining perspective as we head through the upcoming currency storm.

Ironically, if not miraculously, we find ourselves at the cutting edge of technology, while simultaneously, re-aligning with what also happens to be an excellent, proven, and historic form of wealth preservation - and money. Not to mention it is becoming increasingly scarce!

To broaden your understanding of silver's industrial applications, we're examining past and current industrial demand and looking forward toward what is expected to be a very bright future for this powerful and increasingly rare metal.

Growing Industrial Demand

As recently as 1990, total annual demand for silver by industry was about 273 million ounces (Moz). This represented about 39 percent of the total amount of silver fabricated each year. By 2000, industrial demand represented over 40 percent of total fabrication. And as of 2007, it had climbed to an all-time high of 465 Moz annually - or 55 percent of total fabrication - where, despite a downturn related to the global economic crisis that began in 2008, it is approximately today.

This upward trend is expected to continue, with annual industrial silver consumption growing from about 487 Moz in 2010 to approximately 666 Moz in 2015. This increase in demand will come from growth in both long-established industrial uses of silver and some intriguing new applications.

Established Industrial Applications

Silver's superiority as an electrical conductor makes it ideally suited for use in batteries and electrical contacts. Silver is used widely in automobiles (the list of core automotive applications is growing) and, in the form of a highly conductive paste, in photovoltaic cells. Photovoltaic cells - which convert solar energy into electricity - are already in great demand as concerns about dwindling fossil-fuel supplies grow. Photovoltaics also promises to play a key role in the drive toward clean energy sources in coming years. In fact, silver demand for use in photovoltaic cells is expected to double by 2015.

Emerging Industrial Applications

Thanks to silver's unmatched conductivity and relative affordability, it has become a critical element in the manufacture of a great variety of electronic devices - many of which have become important (and largely taken for granted) parts of our daily lives. Because silver-containing batteries manage energy output in very small packages, they are widely used in smart phones, laptops, and tablets, demand for which seems to be virtually limitless.

Other new applications capitalize on silver's powerful antibacterial properties. Silver-bearing products ranging from socks to cosmetics are appearing on the market with increasing frequency.

Because, in many of its industrial applications, silver performs much better than its possible replacements (if they exist), industry shows little interest in moving away from it toward less expensive or more abundant materials. So long as silver continues to be relatively inexpensive, and consumers don't lose their appetites for silver-containing products - which doesn't seem likely - industrial demand for silver will continue to grow.

II. Trends in Industrial Use of Silver: 1990 - 2010

As new technologies are developed and existing ones improved, one might expect some fluctuation in industrial demand for any single material - silver included. However, between 1990 and 2007, silver's industrial consumption enjoyed virtually uninterrupted growth. During this time, industrial fabrication rose 84 percent.

In the 1990s, industrial demand for silver accounted for only about 40 percent of total fabrication. Thanks to a sharp rise in consumer electronics and appliance sales thereafter, by 2008 the percentage of fabrication for industrial use had risen to 52 percent.

Naturally, the economic crisis that began in 2008 had a significant impact on demand for silver as manufacturing in nearly every sector declined. In 2009, fabrication dropped by 19 percent. Industrial demand in 2009 accounted for only 41 percent of total fabrication. But 2010's recovery suggests that this drop in demand is only temporary.

Over the last 20 years, industrial consumption of silver has primarily been driven by economic growth and trends in industrial production - not, as one might think, by price fluctuations. The success of silver in the industrial arena can be attributed to several factors: a lack of acceptable substitutes, a growing number of uses spanning many manufacturing sectors, marked growth in industries that rely upon silver (e.g., electronics and the ethylene oxide industry), and industrial growth in developing countries.

Using the photovoltaics (PV) industry as an example, one sees that recent rapid growth has led to a dramatic increase in silver demand for use in PV cells. In 1999, PV cells produced only .3 gigawatts of electricity. By 2009, PV cells were responsible for 7.3 gigawatts annually, using an estimated 28 Moz of silver.

Looking at the role of the developing world in industrial demand, 1990 saw only 14 percent of industrial fabrication accounted for by developing countries. Today the developing world's share is over 40 percent.

III. Silver's Role in Demand

What becomes clear as we look more closely at silver's industrial uses and demand over time is that silver is incredibly good at what it does - and it performs many important functions in many different industries. Given silver's proficiency in so many areas, industry is somewhat limited in its ability to switch from silver to alternative materials, even those that are less costly.

As a conductor of electricity and heat, silver outperforms all other metals. It can be used in the forms of conductive paste, printable conductive inks, and many more. And silver-bearing batteries offer far superior power-to-weight ratios than their counterparts, making them ideal for today's ever-smaller and more powerful handheld electronics. Silver's virtually 100 percent reflectivity makes it perfect for mirrors and coatings. Silver solder and brazing alloys offer exceptional fluidity and strength.

IV. The Bottom Line

Here we've examined a few of the ways in which industry has harnessed the unique and powerful properties of silver and what we can reasonably expect in the coming years with regard to industrial demand.

All of this assumes, of course, that consumers continue to demand products like computers, smart phones (especially in smaller and more powerful forms), plastics and clean energy, silver will continue to enjoy what has been, with only a few minor exceptions, continuous growth in its industrial use.

What does this mean for you, the silver investor?

Again, silver is more than just an organic monetary metal. It is an exceedingly scarce commodity, mined mainly as a byproduct, which is poorly understood despite increasing demand from an emerging world set on raising its standard of living as quickly as possible.

We believe firmly that industry's seemingly endless appetite for silver will, as the truth about actual supply versus demand becomes understood, play a key role in what is likely to be an unprecedented price explosion. For this reason, buying and holding silver - in physical, not paper form - continues to be a good idea despite price fluctuations.

The logic behind this is simple: At the end of the day, silver has intrinsic value. It has always been and always will continue to be a form of money as well as an industrial asset. Given the continued devaluation of the dollar - along with all other paper currencies - it seems only logical that accumulating assets that can't be devalued is the best way to protect yourself against the seemingly inevitable ravages of hyperinflation.

Furthermore, physical silver (for now, at least) is a low-priced item you can walk into a store and take possession of, which means that your investment is literally in your own hands - not at the mercy of bankers or politicians whose decisions may not be made with your best interests in mind.

There is an unfortunate lack of objective information available about silver's role in the production of so many things essential to modern life. We believe that the more you understand about industrial demand for silver, the more convinced you will be that a) physical silver represents the ideal investment opportunity, and that b) there is much more to silver than meets the eye.